H 



CREDITS, COLLECTIONS 

AND THEIR 

MANAGEMENT 

WITH 

MANY CREDIT DEPARTMENT FORMS 



W. H. PRESTON 

First President of the National Association of Credit Men 



I should deem the formation of sound and sober views on the study of 
credit one of the most desirable portions of a young merchant's education— 
Hon. Edward Everett 

Credit is by no means an exact, but rather a speculative science, and 
is more difficult of mastery than the Greek Verb, Butler's Analogy, or the 
Nebular Hypothesis— W. R. Grim 






b* 



NEW YORK 

THE LAWYER AND CREDIT MAN 

178 Fulton Street 

1897 



cS6 



^ ^ 



Copyright, 1897, 
By THE LAWYER AND CREDIT MAN 



TO 

THE CREDIT MEN OF THE WORLD, 

Whose generous encouragement has made this work possible, it 

is respectfully dedicated by the Author. 



PREFACE 

No apology is necessary for attempting to write a 
book of practice for credit men. 

After spending many years at the credit desk in 
wholesale houses, the author has been impressed 
with the great need of systematic and compre- 
hensive methods. He has observed the new credit 
man starting in without any aids and trying to build 
up a system, and even in many cases attempting to 
work without any system. He has seen many thous- 
ands of letters of a similar nature written one by 
one, when a system of wisely designed printed 
forms would have minimized labor and cost and 
made the result more effective. 

Adding to his own experience a careful study of 
the methods and forms in use in many of the best 
credit departments of the country, he has embodied 
the best into a comprehensive system in successful 
daily operation under his supervision, which he has 
fully described. 

While there is not altogether an absence of theory 
in the following pages, the theory is practically ap- 
plied in at least one credit department. If in this 
effort the author may help some one as he would 
like to have been helped years ago, he will feel well 
repaid for the labor. 

W. H. Preston. 



CONTENTS 



CHAPTER I. 

Necessary Qualifications and Charac- 
teristics of a Credit Man. 



PAGE 



Little attention given to the study of credits. — The im- 
portance of the credit man.— Qualifications. — 
Honor. — Discernment. — Firmness. — Ability to 
write letters. — Memory. — Concentration. — Equa- 
nimity. — Good address. — General office man.— 
Financier. — Knowledge of law. — Industry. — 
Tenacity. — Mistakes unavoidable 15 

CHAPTER II. 

The Influence of Environment upon 
the Work of the Credit Man. 

Should have all possible aids. — Should be unrestricted. — 
His the responsible decision. — Relation to rest of 
office force. — Salesmen and the credit man. — Close 
touch with all departments 31 

CHAPTER III. 

Who Should Be Students of the 
Science of Credits. 
Growth of interest in the study. — A nation of credit 
givers. — Magnitude of losses makes manifest need 



IO CONTENTS 

PAGE 

of its study. — Important to jobbers, bankers and 
retailers 38 

CHAPTER IV. 

Capital as an Element in Determin- 
ing Credit Risks. 

Capital considered most important in considering credit 
risks. — How has the capital been acquired ? — Dis- 
tribution of the capital in the business. — Real estate, 
buildings, fixtures, merchandise. — Distributions of 
accretions of capital. — The degree of convertibility. 44 

CHAPTER V. 

Valuable Information and Methods 
of Obtaining It 

Definite information would prevent losses. — Manner of 
obtaining information. — Credence to be given it. — 
Past record. — Starting clear. — Confidential report 
blank. — Salesmen's reports. — Blank for salesmen. — 
Information from banks. — From former or present 
creditors, with blanks. — Reports from lawyers. — 
Local conditions. — Boom sections. — Termini. — 
Mining towns. — Manufacturing towns. — Partner- 
ship. — Competition. — Attention to business. — 
Leases. — Manner of collating reports 51 

CHAPTER VI. 
Mercantile Agencies— Their Use and Abuse. 

Value of reporting agencies. — Know risk is satisfactory 
before account is opened. — Handling reference 



CONTENTS II 



books. — Assisting agencies. — Discrepancies in re- 
ports from different agencies. — Ratings too high. — 
How credit men can add to value of reports. — The 
collection agencies. — Value of trade reports 77 

CHAPTER VII. 

Value of Signed Statements and the 
Need of Co-operation. 

Agencies furnish too few signed statements. — How to 
ask for statements. — Need of co-operation. — Im- 
pediments to co-operation. — Advantages of co- 
operation. — Competition invites failures. — James 
G. Cannon on statements. — Statements should uni- 
versally be insisted upon. — Merchants should be 
taught reasonableness of demand for statements. . 94 

CHAPTER VIII. 

The Proper Use of Statements and 
Some Court Decisons. 

Assistance in determining a line of credit. — Aid in effect- 
ing settlements. — Statement of facts. — Citation of 
cases 113 

CHAPTER IX. 

Determining Lines of Credit. 

Definition of " line of credit." — Difficulty of determin- 
ing. — No defined system. — Lines of credit too 
liberal. — Mutual confidence. — Honesty. — Insur- 
ance. — Liquidating values. — Real estate 137 



12 CONTENTS 

CHAPTER X. 

Filing Reports— Credit Records. 

PAGE 

Index reports. — Give them a folder. — Form of credit 
record 158 



CHAPTER XI. 

Management of Collections from the 
Office. 

Should have some well defined and carefully operated 
system. — Importance of prompt collections. — State- 
ments with form. — Drafts and notices of same. — 
Draft tracers 161 



CHAPTER XII. 

Exchange and Collection Charges. 

Debtor should pay these. — Extensions. — Form of 
letter. — Treatment of notes. — Collection agencies.. 172 



CHAPTER XIII. 

Treatment of Slow, Doubtful, or 
Desperate Accounts. 

Distinction between attorney and collector. — Endeavor 
to prevent a failure. — Investigate thoroughly before 
proceeding. — Kinds of security. — Criminal reme- 
dies. — When to compromise. — Assignments 182 



CONTENTS 13 

CHAPTER XIV. 
Suspended Accounts. 

PAGB 

Record of. — Claim should not be forgotten. — Take 
judgement 194 



CHAPTER XV. 

Reciprocal Relations between Attor- 
neys and Credit Men. 

Relation not understood. — The commercial lawyer. — 
Reporting by attorneys. — Permanent counselors. — 
Retaining customer. — Compensation 199 



CHAPJER XVI. 

C\nnot Credit Men Be Too Careful? 

Small percentage of losses commendable. — In keeping 
percentage down it must not be done to detriment 
of profits. — One-tenth of one per cent, too low for 
most business 212 



CHAPTER XVII. 

What Can Credit Men Do to Reduce 

the Number of Losses. 

After occurrence of loss go over reports and record and 
ascertain how it might have been avoided. — Com- 
pilation and classification of failures. — Lack of capi- 
tal. — Disaster. — Commercial Crises. — Fraud. — 



14 CONTENTS 

PAGE 

Unwise credits. — Neglect of business. — Doubtful 
habits. — Extravagance. — Failure of others. — Com- 
petition 217 

APPENDIX. 

Additional Credit Department 
Forms. 

Signed Statement I 

Trial Balance Ill 

Monthly Abstract IV 

General Guarantee V 

Agreement to pro rate Securities VI 

Proof of Claim VII 

Consignment Contract VIII 

Lease XII 



CREDITS, COLLECTIONS AND THEIR 
MANAGEMENT 



CHAPTER I 



Necessary Qualifications and Characteristics of a 
Credit Man 

It is said we have no scientific definition of the 
word " credit," and it should hardly be a wonder 
that we have as yet no attempt to reduce the grant- 
ing of credits to a science, for if it ever becomes a 
science it must be through the efforts of those who 
make a business of the granting and control of 
credits. 

No one has yet dedicated his life and his efforts 
to instruct others so they may be fitted for the 
most important position in a wholesale or manu- 
facturing house, that of Credit Man. 

Very few articles, and a smaller number of books, 
have been written that are helpful to Credit Men. 

Such conditions are well accounted for when we 



l6 CREDITS, COLLECTIONS MANAGEMENT 

consider that men often grow into such positions 
from a subordinate place. 

When once engaged in the work there is little 
time for study or for helping others, as conditions 
always exist that seem to require constant and 
careful attention to accounts, both old and new. 

It is a fact much to be deprecated that the larger 
part of the work of the credit man is done without 
any impression that logical and systematic meth- 
ods can be employed in nearly all the work, and 
that the law of cause and effect is applicable to 
commercial life, and especially to that particular 
phase of it, credits. 

Wholesale houses have for years assumed that a 
certain amount of losses are inevitable, and without 
inquiring into the causes have not understood that 
a large percentage could be avoided. 

But of late years, as the policy of some credit 
men has resulted in a smaller per cent, of losses 
there has been more of a disposition to investigate 
methods employed, and the credit man who can 
show a smaller per cent, of losses than the aver- 
age in his line of trade is in demand at a salary 
commensurate with the importance of the work. 

Many employers, because of the faithfulness of a 



QUALIFICATIONS AND CHARACTERISTICS 1 7 

clerk, or because of his success in former positions, 
advance him to that of credit man without first 
considering what is indispensable for success in 
the work, and without knowing whether or not he 
has made a study of the profession he is about to 
enter. 

It is true, there is no teacher like experience, and 
it is true, as well, there is none so expensive. If 
our future credit men find willing and thoughtful 
teachers, either through wise publications or ex- 
perienced professors in colleges, we may be sure 
the future profit and loss account will be a more 
cheerful one to contemplate. We quote another's 
words : 

" A mercantile house may buy goods below the 
market, it may take and get inside discounts, and 
may sell its goods at a. large profit on the original 
price, but unless its credit department is wisely and 
judiciously handled, its inside price, discount and 
profit are soon wiped out, and instead of a profit 
to make the merchant feel comfortable at the end 
of the year, a loss stares him in the face. 

" There is no more responsible position in any 
house than that of the credit and financial mam 
His position and work operate as the mainspring 
and keeps the business moving along smoothly. 



1 8 CREDITS, COLLECTIONS MANAGEMENT 

" A shrewd credit and financial man may get 
along with little capital, but an abundance of cap- 
ital without brains to direct its use is of little avail." 

Competition waxes strong, margins are dwin- 
dling, expenses are increasing, the losses must be 
materially lessened, or many must succumb. 

Let us try then to consider well the qualifications 
and characteristics which the successful credit man 
must have well developed. 

Honor. — Honor, with all that the word implies, 
not only honesty in a business sense, but honora- 
ble in all ways. One need not be the less shrewd 
because he is honorable, but he who has a high 
sense of honor is wise and will be successful, if 
other elements which make for success are not 
lacking. 

Too often it has been said, " He is smart, but 
he is unscrupulous." But even the unscrupulous 
business man demands of the credit man that he 
be honorable. Many a fraud and failure has been 
perpetrated under the cloak of honor, but honor is 
more useful and more successful where it is not 
assumed, but is real. 

How quickly a retail dealer is drawn to a credit 
man of honor, and in time of financial disaster 
seeks his help and advice. 



QUALIFICATIONS AND CHARACTERISTICS 19 

Discernment. — The faculty of seeing between 
things, of assimilating all the information in such a 
way as to enable him to see clearly through what- 
ever there may be of an unsafe character, and judg- 
ing well of the result from well collected informa- 
tion. He needs discernment, too, so he will catch 
at straws which indicate which way the wind is 
blowing. Many very little things, if seen rightly, 
affect very materially the decision on a risk. 

Firmness. — Firmness, but not stubbornness, that 
characteristic which enables him to stand by his 
decision and not be influenced by over-zealous 
salesmen or profuse promises of the debtor, but de- 
sirous of accurate information and ready to reverse 
a decision if later facts presented warrant it. It is 
said that " a wise man changes his mind, but a fool 
never." 

Some will claim that first impressions are the 
most valuable, if so, we only have to jump at con- 
clusions and then firmly stick to them. 

But the wise credit man will treat his first im- 
pressions thoughtfully, but not be so determined 
that he is not open to the presentation of facts fa- 
vorable to a credit. Firmness but not stubborn- 
ness may well be .repeated. 



20 CREDITS, COLLECTIONS MANAGEMENT 

System. — System in all the work, but not too 
much system, and not so fixed that it cannot be 
adapted to circumstances. System enough so that 
desk is always in order, all legal forms and blanks 
of all kinds convenient for immediate use. Work 
so systematized as to minimize labor. 

Many are so bound up in their own system as to 
avoid considering others' systems. Some have so 
much system that their brain is dissipated in sys- 
tem and not used in consideration of their real 
business, credits. 

Letter Writing:. — Because so large a portion of 
his work is that of dictating letters, he must be espe- 
cially fitted for this branch of his work. It cannot 
be denied that this is one of the great features 
which makes for his success or failure. Numerous 
customers are lost, and indeed many accounts are 
lost, as a result of unwise letter writing. One must 
be an adept in this before he takes charge of the 
credits, for experiments in this line are expensive. 
Write a letter easy to be understood. Do not be 
too profuse in compliments or too sharp in criti- 
cism. Avoid statements or words of double or 
doubtful meaning. Let your customer understand 
that he is under obligation to you, especially to 
the extent of meeting his obligations promptly. 



QUALIFICATIONS AND CHARACTERISTICS 21 

It ought not to be necessary to say that the good 
letter writer will have tasty stationery, will insist 
on neat work, will have a stenographer who will 
transcribe notes in good form, paragraphing and 
punctuating with care. Surprising as it may seem, 
many fail to see that office boys are instructed in 
folding a letter neatly. All these little things have 
their influence. 

Memory. — Memory cultivated to the finest point, 
so that when fifty or more orders come to his desk 
for his O. K., he will have financial conditions in 
his mind so well fixed that in most cases the name 
will instantly flash across his memory, the dealer's 
worth, his manner of meeting obligations, and es- 
pecially any unfavorable feature of the risk. This 
is a faculty susceptible of cultivation to a high de- 
gree, by stopping every time you see a customer's 
name to quickly bring before your mind's eye the 
main facts affecting his credit. Old accounts are 
those about which we are most likely to be care- 
less, but if this becomes such a habit that the name 
brings a photograph of conditions before the mind, 
the old account will have as careful thought as the 
new. While memory will be cultivated, he will not 
depend too much upon it, but will keep proper 
records, which will be fully explained later. 



2 2 CREDITS, COLLECTIONS MANAGEMENT 

Concentration. — Quick conclusions are necessary 
nearly every minute of the day. The faculty of 
concentration is very important. For the time cast 
everything from the mind but the one problem 
waiting to be solved ; settle it then and there if pos- 
sible. Much time is lost by the mind being full 
of many things at a time, so that none are solved 
as they would be if the entire thought was con- 
centrated on one question. In considering a risk 
we must have before us only those questions which 
afreet that particular risk, concentrating the 
thought and condensing the information and reach- 
ing a careful conclusion. The line of credit once 
determined should be such as can stand until ma- 
terial changes have developed. 

Equanimity. — Self-control, not easily excited. 
Sometimes it will happen that news of assignment 
of one customer, chattel mortgage by another, and 
loss by fire by another, may all come in about the 
same time. If one can now have his best judgment 
he may be able to do just the right thing in time 
to prevent loss. It is important at all times that 
one maintain his equipoise, for every one is in a 
hurry, and of all men to make an error it must 
not be the credit man. Some one has said that 



QUALIFICATIONS AND CHARACTERISTICS 23 

handling credits depends a good deal upon the 
condition of one's liver. This may be true with 
some, but it is not true of the successful credit 
man, for he must not be a man of moods, but must 
be ruled by his head, and a well balanced head at 
that. When credit men give up the idea that 
granting credit is chiefly a lottery in which it is 
only luck by which they win or lose, the earlier 
will we have efforts to reduce credit work to a 
science. 

Good Address. — As important as it is pleasant 
to the customer or associates, and because it does 
create a favorable impression, it is highly valuable. 
Possibly others may be careless in deportment, but 
when a customer meets the credit man he expects 
courtesy, clear and sensible conversation, business 
treatment and a business carriage throughout. Bul- 
wer Lytton says : " There is no policy like polite- 
ness, and a good manner is the best thing in the 
world, either to get one a good name or to supply 
the want of it." Unless the credit man can com- 
mand the respect of his associates, the employees 
and the customers, he is sure to be a failure. But 
in being courteous and pleasant to meet he must 
avoid making such close friends of the trade as to 



24 CREDITS, COLLECTIONS MANAGEMENT 

influence the business-like handling of accounts. 
While a customer should be made a friend of the 
house, he should not become so at the expense of 
the credit man having so allied himself that he 
cannot treat the account in a cold-blooded busi- 
ness-like way, if it seems necessary. 

General Office Man. —It is hard to conceive of a 
credit man who is not a thorough all-round office 
man. In the medium wholesale houses, the credit 
man is office manager as well, and the success of 
the credit man rests largely upon the success of 
the office management. For unless there is good 
system throughout, the work does not come to 
the credit man's desk as promptly or in as good 
shape as it ought. And even in the larger houses, 
where there is an office manager, he must still have 
a knowledge of the work in all its branches to reach 
the best results. He will often find it of great value 
not only to understand the general principles of 
bookkeeping, but to be a thorough and even an 
expert bookkeeper. Many times, in making in- 
vestigations, he will find it necessary to straighten 
out a set of books, and can often obtain access to 
the books because of his being an expert. He is 
the more ready to detect fraud if he has become so 



QUALIFICATIONS AND CHARACTERISTICS 25 

accustomed to books as to enable him to under- 
stand a set of books. 

But the value of his expert training in bookkeep- 
ing is also prominent in his better ability to analyze 
a commercial report or a signed statement, for 
many of these may be correct, and yet made in 
such a manner as to be misleading. This knowl- 
edge is absolutely neccessary when the credit man 
is responsible for the office management or the 
bookkeeping department. 

Financier. — In all except the larger houses the 
credit man is also the financial man. He must 
not only see to his collections, but must prepare to 
make payments, keeping close watch of the finan- 
cial outlook, borrowing judiciously, arranging ma- 
turities carefully. He will keep in close touch with 
the buyers, that funds may be on hand to take 
advantage of cash discounts, or to caution against 
over-buying if the financial outlook is unfavorable, 
or crop prospects in his trade territory are unprom- 
ising. This part of his work will call for a general 
knowledge of banking and familiarity with bank 
customs and usages. He must learn how to deal 
with his banker in a straightforward frank manner, 
remembering his bank may be the most necessary 



26 CREDITS, COLLECTIONS MANAGEMENT 

adjunct to his business. He will study carefully 
to keep as satisfactory an account with his bank- 
ers as he wants his customers to keep with him. 

He will therefore be a thorough student of finan- 
cial questions, and so equipped as to discern the 
effect certain financial policies will have upon his 
business. He will study closely the history of pan- 
ics and financial depressions, and will not only be 
watchful of financial legislation, but fully posted 
as to the operation of former laws of similar nat- 
ure. He will avail himself of the great benefit of 
the best financial publications at whatever cost. 

Law. — He must have a general knowledge of 
many branches of the law, and must be well versed 
in common law, as well as the statutes of the vari- 
ous states in which he does business; not because 
he proposes to do his own law work, this he cannot 
do successfully, for he cannot read sufficiently and 
he cannot take time to conduct trials, etc. But he 
must have a good understanding of law to handle 
successfully the questions that are before him every 
hour of the day. In fact he cannot expect to con- 
duct his business so as to keep from serious or 
perhaps fatal errors without this knowledge. Ig- 
norance of the law excuses no one. He must know, 



QUALIFICATIONS AND CHARACTERISTICS 27 

too, the special statutes of the various states in 
which he does business, as applies at least to the 
following points; assignments, attachments, chat- 
tel mortgages, foreign corporations, estates of de- 
ceased persons, executions, stay laws, grace, inter- 
est, judgment notes, jurisdiction of justice of the 
peace, limitations, married women, statutes of 
frauds, exemptions, notes, leases, and perhaps other 
points not mentioned. Books are numerous giving 
this information, and he should have one always 
at hand, but should have memory sufficient to 
cover most of these topics, especially in states 
where he is doing his chief business. The more 
he knows of law the more he will esteem the coun- 
sel of a wise attorney, w!k> is constantly reading 
new laws and recent decisions. Only the larger 
establishments can expect to have their own law 
departments, but all may consult frequently with 
the best attorneys. 

Industry. —We find that the motto, " Everlast- 
ingly at it," is one the credit man will do well to 
adopt. There come times when it seems as if the 
manager may cease his labors on some of his lines 
of investigation, but if there is one single thing left 
undone that he knows ought to be done, he will be 



28 CREDITS, COLLECTIONS MANAGEMENT 

apt to find that very thing the vital one to have 
known. Surely it is the industrious man in this 
profession who proves successful. There is no 
room for the sluggard in our ranks. 

But let us not be unwise in this faithfulness to 
our work. It is an economy of time to assist in 
all worthy efforts to better conditions in the com- 
mercial world, and time would be well spent in 
efforts to prevent or repeal mischievous legisla- 
tion. The reason we are so woefully in need of 
better commercial legislation is found in the false 
industry of the credit men in attaching themselves 
to their desks at times when a little effort by a 
large number would result in saving much time 
and many dollars. The only reason we do not 
have more and better business legislation is be- 
cause the business men and especially the credit 
men have not asked and worked for it. 

Tenacity. — When the accomplishment of some 
much desired result seems impossible, when an ac- 
count seems hopeless, when all others have given 
up the struggle, we will find our model credit man 
tenacious and persistent, being fully convinced that 
"while there is life there is hope" of collecting 
that account. 



QUALIFICATIONS AND CHARACTERISTICS 29 

But notwithstanding all these characteristics and 
qualifications he will not be a god, and so he may 
expect to make mistakes. Strange and annoying 
as it may seem, nearly all connected with the busi- 
ness will learn of his losses in some way, and some- 
times discuss the matter, fully determining that if 
something had been done differently this loss would 
not have been incurred. But no* one, not even the 
good credit man himself, can tell how many losses 
he has avoided by adopting certain plans of pro- 
cedure, by carefully avoiding the necessity of turn- 
ing down an order, or by feeling it was best to 
insist upon prompt payments, and thus drive the 
customer to a house more lenient which eventually 
stands a heavy loss. Neither does any one seem 
to know how many merchants he has saved from 
failure by wise advice or by a helping hand, at 
some critical point. No one knows how he has 
allowed the name of the green country boy to go 
on his books, with some appreciation of the hard 
task to educate another farmer for business. A re- 
mark once made may contain some good sense: 
" A jobbing house in our line ought to open a kin- 
dergarten to educate novices in business and thus 
prevent many failures." 



30 CREDITS, COLLECTIONS MANAGEMENT 

But this good work does not go unappreciated 
by the capitalist connected with the business. For 
while there have been losses there have been many 
more avoided or prevented, and the net profit at 
the close of the year is not only indicative of good 
times, and large sales and fair margins, but it is 
sure proof that the credit and financial man has 
done his work well. While the net profit would 
have been more had there been no losses, it is cer- 
tain it would have been less had there been one 
degree more of laxity in the management of credits. 



CHAPTER II 



The Influence of Environment upon the Work of 
the Credit Man* 

The importance of environment is certainly not 
fully appreciated when considering the work of 
the credit man. 

In discussing the influence of environment in 
this connection, it is not my purpose to refer much 
to the surroundings as pertains to convenient desks, 
suitable files, books or office furniture, but more 
particularly to the effect of the attitude of the gen- 
eral manager and the entire office force toward 
the credit manager. 

I am, however, firm in my belief that the credit 
man should have one of the cheeriest places in 
the office, should have convenient and substantial 
appliances, all possible aids in the way of books, 
files and agency information, and that his expenses 
for the conduct of his department should only be 



32 CREDITS, COLLECTIONS MANAGEMENT 

limited by the reasonable needs of the work — not 
to advocate extravagance, but a freedom to choose 
the very best. 

But there is that more important environment, 
consisting of the managerial department, the office 
force and the sales department which seems to me 
to have more to do with the success of the credit 
man than anything else, save his own ability, can 
possibly have. 

First of all we will concede the Credit Man 
must have ability and possess the elements which 
have been enumerated; we say he must have this 
ability and then he must have liberty to exercise it. 

It has been frequently said that the credit man 
is usually an employee, and as such is not as free 
as he might otherwise be. 

It is true that most credit men are employees 
only or hold a nominal interest, sufficient to give 
them an office with a title that will have force in 
the conduct of their department. 

As such employee, he is very apt to feel the need 
of pleasing his employers; in his effort to please, 
he too often runs the risk of forfeiting his per- 
sonality by releasing personal convictions, formed 
after a careful study of conditions, rather than ap- 
pear to oppose a superior officer. 



INFLUENCE OF ENVIRONMENT 33 

Usually the credit man is well paid, his position 
is one not to be hastily resigned, but let it be re- 
membered the value of his services depends upon 
the results of the conduct of his department more 
than upon the giving up of a personal conviction 
for the sole purpose of agreeing with the manage- 
ment. Time, that great prover of all things, soon 
demonstrates the success or failure of certain lines 
of action. 

It has been my fortune to be so situated and to 
have had such personal acquaintance as to show 
clearly the value of independent thought and ac- 
tion, not independent in the display of antago- 
nisms, but such a reliance upon hard won convic- 
tions that one is willing to stake his reputation and 
his future upon it. 

I confidently urge the value of consultation and 
advice, and none but the stubborn and conceited 
will spurn it, but advice is different from interfer- 
ence. We often hear the credit man say, " Well, 
that loss wouldn't have occurred if I had had my 
way. I was convinced that account ought to be 
cut off, but the manager having in view only the 
profit on the sale, and possessing only a super- 
ficial knowledge of the risk, insisted that we con- 



34 CREDITS, COLLECTIONS MANAGEMENT 

tinue the account." Now this is something we 
meet often, persuasion taking the place of honest 
judgment. 

There are not many managers who will say 
" That credit department is run by Mr. Blank, and 
as long as he has charge of it there will be no in- 
terference. I will gladly advise with him at any 
time, but his must be the responsible decision; 
when results are not satisfactory we will make a 
change." But is not this the way it should be? 
We know that a decision is not or will not be 
reached in a minute or by other than a careful 
investigation, and when we begin to feel that an 
account is getting dangerous, is it not because 
of much pains-taking consideration of all the influ- 
ences surrounding the risk? (I might add right here, 
parenthetically, that I don't take much stock in 
the intuitions some credit men claim they rely 
upon, nor in the judgment that comes to one as 
the condition of one's liver, but rather in that dis- 
cernment that can see through many things and 
reach a conclusion formed from the relations of all 
and not from one single characteristic such as 
we have seen enumerated in various journals, viz., 
parting the hair, gaping, holding thumb in the 



INFLUENCE OF ENVIRONMENT 35 

palm, shutting the hand in answering a question, 
etc., etc.) 

But, to come to our subject, a manager has much 
to do toward making or unmaking a credit man. 
If a man is worthy to be intrusted with so im- 
portant a department, he ought to be given free 
use of all his powers and let results decide his 
fitness, and the credit man himself owes it to his 
employer or associates that his careful judgment 
be followed, for only in this way can he do his 
best work, and if his best work is not successful, 
surely the position should be taken from him. Not 
in any controversial spirit should he maintain this 
attitude, but with a spirit born of deep conviction 
and a plea, if necessary to abide by it and await the 
outcome. 

Once it was remarked of a certain house, " They 
would make a good credit man of him if it was 
in him to be a credit man, for the manager of a 
department in that house is in sole charge." 

But there is another effective feature of the credit 
man's environment. I refer to the employees in 
the other departments of the office. 

The bookkeeper should not be the man who feels 
he should have been the credit man and thus jeal- 



36 CREDITS, COLLECTIONS MANAGEMENT 

ous of success and disposed to rejoice at the fail- 
ures that may come, he should rather be one who 
feels that in a measure he is responsible for the 
success of the credits, and thus be alert to detect 
a slow account or a fast increasing balance. The 
bookkeeper is in a position where he can disclose 
much of value or can withhold many facts. His 
assistance should be cultivated, not repelled. Many 
credit men are themselves at fault for the antago- 
nism of the bookkeeper, for they too often look 
upon the bookkeeper as a rival and therefore one 
to be kept down. This is a condition many offices 
are in at this time, " divided against themselves." 
The manager should know that there is perfect 
accord between these departments. 

It goes without saying that all well regulated 
houses will insist on books being posted promptly 
so that information furnished as to condition of 
account at any time is fully up to date. This done, 
it calls for all other work being kept up promptly, 
billing, rebates, return goods, statements, etc., etc. 
Then there is that wider and farther reaching en- 
vironment of the sales department. 

I knew one credit man who wrote to a salesman 
for information, and then later told the salesman 



INFLUENCE OF ENVIRONMENT 37 

he "wouldn't give a cuss for all the information 
or judgment of an account that the salesman could 
bring." 

It is not necessary, nor is it advisable, to abide 
by the decision or act upon the desires of the 
salesman, but his information is none the less valua- 
ble. Let the salesman understand that his informa- 
tion (all he can get) is wanted, to weigh with other 
information you have; let his work be appreciated, 
value it highly, learn to discern the manner of using 
it; but use it only as supplementary to other in- 
formation. With this understanding the salesman's 
desires will be for success of the credit department, 
and he will come to understand that his salary 
depends somewhat upon the success of his ac- 
counts as well as the amount of his sales. 

The mail order work connected with the sales 
department should be in close touch with the credit 
department, some system should be adopted by 
which it is known who are the most desirable cus- 
tomers, and consequently entitled to the very best 
prices and terms that the house can give. In 
other words and in brief, the entire work of the 
office force and sales department should be har- 
moniously adjusted to conserve the best interests 
of the credit department, and all work together 
for the best success attainable. 



CHAPTER HI 



Who Should fee students of the Science of Credits ? 

Interest in the study of the Science of Credits 
has never been as intense and earnest as at the 
present time. 

During the past few years all trade papers, bank- 
ers' magazines and many daily papers have taken 
up the discussion, and publications devoted almost 
entirely to the presentation of the many phases of 
the question are gaining wide circulation. 

As we look back over the great losses of the 
past years, we are amazed to find there has never 
been an effort to reduce the granting of credits to 
a science. 

We are pre-eminently a nation of credit givers 
and credit obtainers. 

In our dealings very little actual cash changes 
hands, our business is conducted upon some crediti 
basis; we buy on specified time, and when we pay 
it is with some form of credit instrument. 



STUDENTS OF CREDITS 39 

Our business men, and we count them as keen 
and far-sighted as those of any nation in the world, 
have perfected many excellent plans to add to 
their profits. Inventions for cheapening the manu- 
facture of all classes of goods have multiplied and 
are amazing the whole world. 

Trusts and combinations have been formed to 
increase the profits by decreasing competition. In- 
surance has practically eliminated the necessity of 
failures by reason of fire. 

Great stores have solved the problem of de- 
creasing percentage of expense of distribution by 
increasing the volume of business. 

But, notwithstanding all this and much more 
we might enumerate, we find our business men 
appalled at the number of failures and the aggre- 
gate losses resulting therefrom. 

The liabilities represented in business failures in 
the United States for 1892 were $108,595,248; for 
1893, $382,153,676; for 1894, $151,548,520. 

True, this was not all lost, but a very large per- 
centage of it was, and a much larger percentage 
was tied up in litigation or in process of adminis- 
tration. 

A study of the summary, classified as to causes, 



40 CREDITS, COLLECTIONS MANAGEMENT 

makes manifest the need of very serious considera- 
tion. 

Recently a prominent banker authorized the 
statement that the schedule of insolvent debtors in 
New York city during the first seven months of 
1895 showed liabilities of $5,857,000, of which 
$703,687 was due to banks. The lack of proper 
study of credit conditions and the failure to insist 
upon a compliance with prudent business customs 
has been frequently admitted by bankers, and com- 
parison of losses has made evident the value of a 
properly conducted credit department in banking 
houses. 

This being true, how little argument should be 
required to demonstrate to all banking institutions, 
large or small, the importance of examining close- 
ly this most important subject. 

It has been a surprise to many to find the very 
institutions which we have been led to believe had 
reached the acme of conservatism, were, in fact, 
granting credits with very little investigation, or 
with very poor judgment. 

Every banker in the country should be enrolled 
in this great school for the study of the science 
of credits. 



STUDENTS OF CREDITS 41 

Jobbers of merchandise have for years conceded 
the importance of credit giving, and are the most 
eager to find ways of reducing the enormous waste, 
through losses, by reason of bad debts. 

Lumbermen have recently taken up the discus- 
sion in their journals, and specific mention has 
been made of losses which could easily have been 
avoided had there been even the slightest inquiry 
regarding advisability of granting the credit. 

Earnest pleas have been made for lumbermen 
to give this theme more attention, and it has been 
boldly stated that unless it was done, the close 
margins of profit, together with large losses, would 
result disastrously. 

The study of our government's present financial 
condition is but another phase of the study of 
credits, for is it not our national credit that is 
questioned in the return of American securities and 
the withdrawal of gold? 

One who has had large experience with failing 
retail merchants asserts that the importance of a 
better understanding of the various features of 
credit giving and credit obtaining is an absolute 
necessity in this age of close competition. 

Credit obtaining, we would especially empha- 



42 CREDITS, COLLECTIONS - MANAGEMENT 

size this, for the merchant will do a much safer 
business when he has come to an appreciation of 
the elements which strengthen or weaken his own 
credit. 

We have only commenced to realize the wide 
range of discussion open to us. 

For instance, we are all much interested in the 
effort made to ascertain the part which checks 
and other instruments of credit have in retail trans- 
actions. 

Two thousand, four hundred and sixty-five Na- 
tional Banks reported that the use of credit instru- 
ments (exclusive of coin and paper money) ranged 
from forty-three per cent, in Wyoming, to eighty- 
six per cent, in Mississippi, and the average for 
one day in which payments reported amounted to 
$5>999>°65 throughout the United States was 58.9 
per cent. This included check and store orders. 

The inquiry made last year was the first com- 
prehensive attempt to ascertain the proportion of 
credit instruments used in retail trade. 

The wholesale trade uses a much larger propor- 
tion of credit instruments ; probably ninety per cent, 
to ninety-five per cent, of the settlements being 
made with checks or drafts. 



STUDENTS OF CREDITS 43 

Credit is used much more in foreign countries 
than ever before. A recent publication of a re- 
port of the Bank of Belgium shows bills discounted 
have multiplied nearly three times since 1872, al- 
though the total bank transactions have only in- 
creased about fifty per cent. 

In our own country during the last twenty-five 
years the number of national banks have a little 
more than doubled while loans have trebled. 

Hundreds of questions arise in the numerous 
transactions, and men posted on all these points 
are in increasing demand. 



CHAPTER IV 



Capital as an Element in Determining; Credit Risks 

When we inquired of credit-men what they con- 
sidered the three most important elements to be 
considered in determining a credit risk, it was 
hardly surprising to find most of them mentioning 
capital as the most important element. It was 
quite plain, too, that they used the term in its re- 
stricted sense as applied to the money or the prop^ 
erty convertible into money with which a merchant 
carries on his business, and had not in mind those 
general terms which have been used in speaking 
of capital, such as " The produce of past labor 
stored up and applied to the facilitating of future 
labor," or that other definition of capital often 
used, " Whatever thing done enables some other 
thing to be done which supplies any of the ne- 
cessities of the human race." 

Credit-men do not lose sight of those elements 
which help to make and to increase capital, nor 



CAPITAL IN DETERMINING CREDIT 45 

do they forget that a capable man has in his very 
ability that which may count for more than capital, 
but they count these as separate principles which 
have their individual bearings upon the business. 
It may be, however, that enough thought is not 
given to the manner of its acquirement; the pro- 
portion of its distribution; the disposition of its 
accretions and its degree of convertibility. 

It should be valuable to have a close analysis of 
above named features, for it will be readily con- 
ceded that the final result is dependent very ma- 
terially upon their influence. 

The manner in which capital has been acquired 
will have an important bearing upon the value 
which the owner will place upon it, the care with 
which he will guard it, and will be an excellent 
indicator of his ability to add to it. If he has won 
his capital by diligent application to his work, if 
he has saved at the sacrifice of his personal com- 
fort, if in his efforts to be the master of himself 
he has successfully eluded the dangers which come 
from a desire to appear to be more than he is, and 
has avoided the formation of extravagant habits, 
he is not apt to lapse into careless business meth- 
ods nor seek personal gratifications of appetite at 



46 CREDITS, COLLECTIONS MANAGEMENT 

the expense of his business, nor will he be likely 
to make representations to his creditors tending 
to mislead them regarding his net worth. 

If, on the other hand, he may have been so un- 
fortunate as to have " been born with a silver spoon 
in his mouth," and may have been reared in luxury 
and have had loving but misguided relatives to 
provide for his desires, he will not have learned 
so much of the difficulty of winning and keeping 
his money, nor have been trained so as to cope 
with relentless competition. The fact of his hav- 
ing funds provided without trouble upon his part, 
together with his honesty in paying obligations, 
because it was easy to be honest, under such cir- 
cumstances, may prove to have furnished him 
with confidence in the honesty of too many of his 
applicants for credit as well as with assurance of 
ease in. meeting their obligations. 

Again, if one has struggled unsuccessfully or 
mayhap has given up the effort to accumulate by 
his own powers, and suddenly inherits a goodly 
capital, he may be inclined to think, now that he 
has his start, he must be a Napoleon in finance 
and forget that the very fact of his failure to ac- 
cumulate for himself should caution him against 



CAPITAL IN DETERMINING CREDIT 47 

attempting ambitious movements in the commer- 
cial world. 

Thrice valuable and valued is that wealth which 
is the result of one's own efforts, and firmly estab- 
lished is that business founded by the prudence, 
sagacity, economy and ability of its owner. 

The proportion of the distribution of capital is 
a factor which must enter into our considerations 
as we contemplate the real value it may be to the 
business. Is a proper proportion of it invested 
in such a manner as to bring a profitable return, 
and so that it will not be an excessive burden 
rather than a dividend payer? Consider the care- 
ful estimate that in the consumption of the Na- 
tion's annual product 17.86 per cent, is used to 
maintain old wealth, and that it requires 3 per 
cent, to maintain buildings in their present value 
and 10 per cent, to keep in repair other wealth. 
Then note the proportion in which the capital is 
represented in real estate, buildings, fixtures and 
merchandise. The last named, merchandise, must 
always be given the precedence, for it is this one 
asset which must be depended upon for profit in 
the conduct of the business, and upon this we must 
put the burden of realization of needed funds. 



48 CREDITS, COLLECTIONS MANAGEMENT 

Real estate and building ought not to represent 
a larger proportion of the capital than will serve 
to take the place of expenditure for rent, taking 
into consideration the value of permanent and de- 
sirable location. 

Great care should be exercised in this matter, 
for real estate is subject to such fluctuations that 
it may prove a liability and not an asset. Fix- 
tures should be such as are necessary and useful, 
and while substantial and showy fixtures add to 
the attractive appearance of the store, there ought 
not to be capital tied up in them which is needed 
for the purchase of merchandise. 

What distribution is made of the profits or ac- 
cretions which enter into capital? What has been 
said under the previous topic which referred chiefly 
to the distribution of capital upon the commence- 
ment of business will apply to the distribution of 
the accretions, but more ought to be said concern- 
ing these additions which appear to be made to 
capital. It is too often true that a merchant de- 
ceives himself and his less astute creditors from 
year to year when he figures up and concludes he 
has made a certain addition to his capital, but 
having failed to discriminate wisely has so dis- 



CAPITAL IN DETERMINING CREDIT 49 

tributed these profits and even some of the original 
capital that in the end he finds his capital has been 
decreased rather than increased. Take the mat- 
ter of outstanding accounts, for instance; it is an 
unusual list of accounts of a retail dealer, which 
will collect a larger ratio than fifty per cent., espe- 
cially if they are the result of several years' busi- 
ness. The honest, yet hopeful, merchant hesitates 
to estimate an account as lost, and he confidently 
expects to realize on most of his accounts, but ex- 
perience only needs to be referred to as proof of 
his unwarranted hopefulness. 

Then the inventory is often treated in the same 
optimistic manner, and merchandise is counted as 
worth all it cost, and enough is not allowed for 
depreciation and for capital tied up in slow sell- 
ing, unprofitable and even worthless goods. 

There is the temptation for a merchant to foster 
home enterprises and thus to use profits in small 
outside investments, thereby distributing assets in 
a manner which often makes them unavailable. 

The degree of convertibility. This also is inter- 
locked with former headings, but is sufficiently 
independent in its influence to be considered sepa- 
rately. Not infrequently will a merchant report 



50 CREDITS, COLLECTIONS MANAGEMENT 

he has a certain amount of capital, which amount 
is what he figures his net worth to be, but it is 
important to know how quickly this capital could 
be converted into sufficient cash to meet his lia- 
bilities. A man with $20,000 net worth is some- 
times forced to the wall because his assets are not 
of such a nature as to be easily convertible. The 
nature of the business demands attention ; a grocery 
stock is more readily converted into cash than a 
stock of furniture or jewelry. Hardware will close 
out easier than agricultural implements, and a drug 
stock can be better realized upon than millinery. 

Secured notes are better than open accounts, 
and in a farming community are better property 
in October than in April. 

We may then conclude that in the consideration 
of capital as an element in determining a credit 
we must not only know the amount, but if we 
would know its true value will give careful heed 
to the manner of its acquirement, the proportion 
of its distribution, the disposition of its accretions 
and its degree of convertibility. 



CHAPTER V 



Valuable Information and Methods of Obtaining It 

All must concede that if the credit man had 
definite and complete information regarding the 
merchant's financial condition, together with a 
knowledge of his character, ability and habits, as 
well as the facts concerning local conditions sur- 
rounding the debtor such as bear upon the ability 
of his customers to pay for their purchases, there 
would be very little excuse for losses. 

In fact, if this information was corrected or veri- 
fied at least once, or, better, twice each year, he 
would be an obtuse credit man who would have 
many losses other than those that are brought 
about by visitations of Providence or other causes 
impossible to calculate. 

With the truth of above statement granted, is 
it not then of the utmost importance that we make 
a very close and careful study of the manner of 
obtaining such , information, the credence to be 



52 CREDITS, COLLECTIONS MANAGEMENT 

given to some lines of advice and the science of 
collating all evidence and reaching conclusions? 

It is not enough to know that the applicant for 
credit starts with ample capital, for if he is not 
possessed of energy, ability and economy this cap- 
ital may soon dwindle. 

If he has not had the experience with the world 
to teach him that it is unsafe and unwise to credit 
indiscriminately, his capital will soon be scattered 
to the four winds. 

Should his honesty be questioned or his habits 
be unsteady and thus cause negligence of his busi- 
ness, competitors will soon have his trade, ques- 
tionable resorts or convivial friends his capital and 
the jobber his worthless notes and accounts. 

Past Record. — Let us know his past record ; 
has he failed? If so, under what circumstances? 

Occasionally a credit man is found who takes 
it for granted that because a man has failed once 
he is not to be trusted. This is neither just to 
the honest man who may have been unfortunate, 
nor is it wise in the credit man. 

It is, and must ever be, a fact that one's unfort- 
unate experiences or one's failures may be the 
steps by which he may mount upward to success. 



OBTAINING INFORMATION 53 

Just as one's greatest success may be the means 
of direst failure. 

Think of this for a moment, for does not your 
failure cause you to< be more cautious and teach 
you what actions to avoid? And does not your 
success invite carelessness which may cause failure? 

But if his past record is one of a series of dis- 
honest or incompetent acts, if he seems not to 
have profited by past experiences, it is best to be 
very cautious. 

Even experience does not always bring ability. 
If the cause of past failure was fire, flood or like 
disaster, there may be no reason to expect other 
than success. 

If intemperance, gambling or women have 
caused his failure, be sure of his reform. In short, 
look carefully for the cause, and be sure it has 
been removed. 

Starting Clear. — Is he starting in business with- 
out any indebtedness? It does appear clear that a 
new business should open free of indebtedness. 
There is no old stock, no over purchase, no ac- 
counts. The average man should not be encour* 
aged to enter retail business unless he can have 
his first stock free from indebtedness, and had 



54 CREDITS, COLLECTIONS MANAGEMENT 

better start with $1,000 stock paid for than $2,000 
stock upon which he is owing $1,000. 

If he has bought a new stock it is easy to ascer- 
tain of whom it was bought, and direct inquiry 
will nearly always bring correct reply. 

If he succeeds to an established business, a blank 
such as the following sent to his predecessor will 
usually bring helpful information, and especially if 
the predecessor is one of your old customers and 
you accompany the blank with a kindly letter of 
thanks for his patronage, expression of good will 
for his future, and a request for information. 

It is well to call especial attention to the state- 
ment " they owe us." Be sure to have an answer 
to that question. 

CREDIT DEPARTMENT. 
CONFIDENTIAL REPORT BLANK. 
189.. 

Please favor us with answers to the following questions 
regarding the firm named below. 

"We will appreciate your effort to reply to each question 
and any additional information you may be pleased to 
furnish. 

Very respectfully yours, 



Firm name Address 

Former address Business? 

Full name of members of firm? , 

Age? Nationality? Married?, 



OBTAINING INFORMATION 55 



Is he careful whom he credits? 

Is he a good collector ? 

Ever in financial trouble? 

Value of Stock? Insurance on Stock? 

Value of Real Estate (not exempt?) 

Insurance on Store Building? 

Any borrowed money, if so, of whom? 

Any Chattel Mortgages? 

Any Real Estate Mortgages? 

Total amount owing? Any suits pending? 

Character? Habits? 

Under heavy expense? Prospects of success?. . .. 

They owe us Is it collectible? 

How large a line of credit would you advise? 

Put further remarks on reverse side. 

A credit man is not justified in resting his case 
until every question is correctly answered from 
some source. 

Salesmen's Reports.— The salesman should not 
send in the first order without accompanying it 
with as full a report as he can make. A wide- 
awake salesman can so control conversation and 
so direct inquiry and make such close observation 
as to be very helpful to the credit man. He can 
always make a close estimate of value of stock, 
can judge as to age and habits, and gain some 
idea, from general appearances, as to ability. 

The use of the eyes, without a word of inquiry, 
will reveal of whom he has made former purchases. 
If the order is a large one or the customer one 



$6 CREDITS, COLLECTIONS MANAGEMENT 

to whom he can get very close, a signed state- 
ment of his financial condition may be obtained. 

Many do not place much reliance on a sales- 
man's judgment of credits, or his recommendation, 
and that is the very reason they are not as helpful 
as they might otherwise be. 

Very few houses have special report blanks for 
salesmen's use; many have the salesmen report, 
but not on regular forms. It will be seen by forms 
which follow that the three blanks are for sales- 
men's use only. The first blank is used by hard- 
ware house, the second by dry goods house and 
the third by boot and shoe house. It will be noted 
that each line seems to place emphasis upon dif- 
ferent features. 

no. 1. 

REPORT OP CREDIT DEPARTMENT. 

Salesman 

Date 189. . 

Name of firm Address 

Full names of members 

Nationality Married 

Estimated value of stock Condition of stock 

Insurance 

Value of real estate (except homestead) 

Former location 

Buys hardware of 

Buys agricultural implements of 

If claims on commission, so state 

Buys stoves of 



OBTAINING INFORMATION 57 

Have also bought of 

Consensus of reports regarding character: 

Habits 

Ability 

Expense 

Crop prospects Is location favorable 

Write further report, also your recommendation on re- 
verse side. 

NO. 2. 
To be used when taking orders from new customers, 
also from parties who have not made any recent pur- 
chases, especially those of limited means; also when tak- 
ing large orders from any customer, whether new or old. 

REPORT BLANK. 

Name of customer 

Date 189. . 

Buys from the following houses: 

Dry Goods 

Clothing 

Boots and Shoes 

Groceries 

Hats and Caps 

Other Lines 

Annual business $ Insurance on stock $ 

Prompt or slow pay ? 

I estimate value of stock at $ 

How long in business? 

Where previously located? 

Are they free buyers ? 

Is stock well assorted and in good shape? 

Give your impressions and all information possible, re- 
garding Capital and Ability; Expenses (Store and Fam- 
ily); also Reputation of Firm, touching their Habits, Re- 
sponsibility, etc. Note all points of interest and return 
blank properly filled out. Remarks on reverse side. 



58 CRKDITS, COLLECTIONS MANAGEMENT 

NO. 3. 

Accompany by " proper statement " when it can be 
obtained; and make report complete. 

CREDIT DEPARTMENT. 

Style of firm Address 

Shortest time upon which will accept this order is 

Furnish no property statement because 

Buy of 

The apparent value of stock is $ in condition 

Location is Competition 

Bank says character habits ability 

experience promptness. . . . responsibility, etc. . . . 

Other authorities 

Remarks 

Salesman 

Date 

The credit man should be close to the heart of 
the salesman, and cause him to feel that his salary 
depends as much on the success of his accounts 
as the amount of his sales or percentage of profit. 

To be sure, he is out to sell goods, and his de- 
sire for large sales may, and surely does, often 
influence his judgment, but while he is made to 
feel that he is a partner in making credits, let him 
appreciate the fact, too, that the information he 
gets cannot be complete. You have other informa- 
tion from many sources, and must make final dis- 
position of the credit from the summing up of all 
reports, and you must make the final decision, 
treating as of unusual value his information and 
respecting his judgment. 



OBTAINING INFORMATION 59 

The salesman should have a transcript of state- 
ments once a month, showing total indebtedness 
and amount due from each of his customers. 

This should be done whether the salesman is 
allowed to collect or not, and he should inspect 
it carefully and call attention to any account he 
may consider too large or too slow. 

Banks. — It is a terse remark of some Credit Men 
that " Bank information is valueless." In support 
of this statement they say " the banks will recom- 
mend the local merchant, even if they know he i9 
weak, and that the merchant will owe the banks 
and they will not report it." 

To some measure this is true and to some extent 
it is unjust. 

One who has used the foregoing inquiry blank 
finds many instances where the banks state defi- 
nitely amount owing or answer positively " No," 
and in no instance has he found a false statement 
by the bank. 

Bank information is of especial value, too, when 
there is more than one bank in the town, for the 
reports are quite sure to disclose with which bank 
the merchant is dealing, and helpful acquaintance 
can be cultivated if desired. 



60 CREDITS, COLLECTIONS MANAGEMENT 

It is possible that the habit of asking banks for 
full report without any compensation may account 
for their carelessness at times. 

Former or Present Creditors it does not al- 
ways follow that because a dealer has once been 
slow pay he will always be the same, for local con- 
ditions change and business methods are often 
improved. 

But if he has been slow pay for any length of 
time, and if parties now selling him unite in re- 
porting him delinquent, it is safe to assume that 
your experience will correspond, and wise to decide 
to refuse to open account. 

So then it is important to have the experience 
of those whom he has formerly favored with his 
patronage. 

Probably the use of a form such as the follow- 
ing will give the desired information : 

STRICTLY CONFIDENTIAL. 

189.. 



DEAR SIR: 

Please give us in confidence all the information you can 
regarding the character, habits, financial standing, and 

business ability of , together 

with your opinion as to prospects of success, and net 



OBTAINING INFORMATION 6l 

worth as a basis for credit, which we assure you will be 
duly appreciated and the favor reciprocated when occa- 
sion occurs. Very respectfully, 

Or for some purposes the following blank may 
be preferred: 

STRICTLY CONFIDENTIAL. 

189.. 



DEAR SIR: Please give us in confidence answers to 
the following questions, and all the information you can 
regarding the character, habits, financial standing, and 
business ability of the party named below, together with 
your opinion as to prospects of success and net worth 
as a basis of credit, which, we assure you, will be duly 
appreciated, and the favor reciprocated when occasion 
occurs. 

How long has party dealt with you? 

Is he now a customer? 

What line of credit do you extend him? $ 

Does party discount your bills? 

If not, are bills met promptly when due? 

Does he ask for extensions ? 

If not incompatible with your interest, state how much 

he owes you ?. $ 

How much, if any, past due ? 

Is his manner of dealing satisfactory? 

Other information affecting credit risk 

If the inquiry you make of another creditor is 
upon one with whom you have had dealings, it is 
but just that you should send a report of your 
experience. The use of the following form often 
results in obtaining more complete reports: 



62 CREDITS, COLLECTIONS MANAGEMENT 

STRICTLY CONFIDENTIAL- 
DEAR SIR: 

Reciprocating your kindness in replying fully upon the 
party named below and thanking you in advance for 
your favor, we beg to state our experience and to give 
present condition of account. Very respectfully, 

Name 

Address 

Salesman should have been instructed to include 
names of firms from whom the buyer is purchas- 
ing in his report. 

Still some will maintain that your inquiry to 
another jobber will not be answered honestly, for 
if your applicant for credit is owing the jobber 
a large amount and they want his account trans- 
ferred, they will make a favorable or misleading 
report. But, on the other hand, if they want to 
retain his trade, they may, if you represent a com- 
peting house, make an unfavorable and dishonest 
report. 

It may be that those who believe others will re- 
sort to such methods will adopt the same course, 
but surely it cannot be that credit men of honor, 
and their name is legion, will do otnerwise than 
report correctly, and if not from a sense of honor, 
they will for their own best interests, for credit 
men soon learn to avoid that class of reporters, 
for they are soon detected. 



OBTAINING INFORMATION 63 

Lawyers. — Perhaps no class of people are asked 
to do more for nothing than the lawyers. They 
are expected to report for everyone and upon 
everybody about whom inquiry is made, and if 
they fail to report carefully all details, complaint 
is made. They are expected to receive claims for 
collection that the credit man has worn thread- 
bare, and if not collected receive no pay, whether 
they put much or little work upon them, but they 
must receipt for claim, report on it, perhaps fail 
to collect because it is impossible to collect, and 
then return the claim to receive what? — blame for 
not being more successful. 

Many credit men will obtain information year 
after year for which they pay nothing. Will go 
into a town and collect their own claim, and not 
even give the attorney a friendly call or an op- 
portunity to make even a small fee. 

Possibly this may be thought not to have any- 
thing to do with the value of reports they may 
make, but it does have much to do with it. 

It is a pleasure to note that some firms are 
adopting the plan of enclosing, besides the stamped 
envelope, a few extra stamps or a dime, only a 
trifle, it seems, but many attorneys make a thou- 



64 CREDITS, COLLECTIONS — MANAGEMENT 

sand or more reports a year, and it might be an 
incentive for them to keep in their offices an in- 
dexed book showing record items of each firm. 

Surely but a few minutes each week would need 
to be devoted to this purpose. 

It is true, we all acknowledge, that the average 
attorney's report is not as it ought to be, and the 
effort to test the advisability of above plan would 
certainly not be expensive, and those who have 
tried it claim they receive enough better service 
to compensate. 

The attorney ought to file inquiries so that he 
would know those who had made inquiry and 
date it was made so that in case of unfavorable 
indication he could promptly wire or write each 
firm having made inquiry. The average attorney 
is not very systematic, but if each inquirer would 
attach to his blank a form such as the following 
it would be carefully noted by some attorneys and 
be of much benefit at times. 

CREDIT DEPARTMENT. 

CONFIDENTIAL. 
189.. 



DEAR SIR: Kindly file this indication of our financial 

interest in , and promptly 

notify us by wire at our expense of any unfavorable ac- 



OBTAINING INFORMATION 65 

tion necessitating prompt attention on our part. 

Should your present report be unfavorable, and you 
find good reason for modification at a later date, we will 
appreciate the information in our usual manner. 
Very respectfully, 



Surely there are many good men of honor among 
the attorneys, many who regret a loss as much as 
we do, and proper recognition and fair remunera- 
tion will be mutually helpful. 

Local Condition. — Many retailers have not suf- 
ficient capital, or if possessed of large capital, may 
be employing it to do a large business, much of 
which may be on credit " until harvest." 

For these reasons they cannot withstand a crop 
failure. Newspaper reports are often misleading, 
especially when relating crop conditions, for a re- 
porter for his own locality is inclined to be anxious 
to make as favorable a report as possible. It is 
the old story of " putting the best foot forward/' 

Instances are not unknown where a reporter 
has told the truth regarding unfavorable crop out- 
look or crop results, and been denounced in very 
strong terms for discrediting his own vicinity. The 
importance of this information is hardly to be over- 
estimated, for the ability and desire of your cus- 
tomer to pay are the things for which you are 
making your investigation. 



66 CREDITS, COLLECTIONS MANAGEMENT 

Best of all would be a trip by the credit man 
over the territory, but that is impossible to any 
extended degree. 

The salesman ought to keep his house informed 
often. 

One house asks reports of their salesmen two 
or three times a year so as to include small grain, 
fruits and corn prospects. 

It is a good plan in writing customers to make 
an occasional inquiry and to note carefully the 
replies. 

A map can often be marked to advantage, and 
it will be found remarkable how streaked the map 
is with good, fair and failure, and in some por- 
tions of the west it will be interesting to note how 
that some sections are nearly always good, and 
some rarely ever good, thus noting the fertility or 
barrenness of the soil or perhaps the failure to have 
sufficient moisture, or to be subject to overflow. 

Boom Sections. — Manufacturers or jobbers doing 
business in the west and south have had their ex- 
periences, some of which have been dearly bought. 

The town or country which has a boom is sure 
to harbor many who are not sufficiently cautious 
to prevent overreaching and also many rascals 



OBTAINING INFORMATION 67 

who take advantage of favorable conditions to 
make a steal. 

Many have been known to start in business in 
boom towns with scarcely any capital, and still 
have sufficient trade to enable them to meet their 
bills promptly at maturity, and thus build up a 
large credit, accumulate large stock, and sell out 
or mortgage and retire. 

Credits in boom towns are unusually hazardous, 
for when the collapse comes many have organized 
their business on too large a scale and must suc- 
cumb. 

The credit man must therefore be acquainted 
with the town or surrounding country. 

Termini. — A town appears to be fortunate if it 
is a terminus, for trade is drawn from many direc- 
tions and the shipping necessarily done from that 
point helps to build the town ; stores and residences 
multiply and all seems prosperous. But the road 
is built a few miles farther, and the former terminus 
is but a way station. 

The observant man has noticed the effect which 
usually covers a series of years; the appearance 
of the town and the number of store buildings 
indicate a good business town, and many start and 



68 CREDITS, COLLECTIONS^ MANAGEMENT 

fail and their places are filled by others who meet 
the same fate, until some are afraid^to open ac- 
counts in towns of this character. Make especial 
notation on accounts located at such points. 

Mining Towns. — If the trade of a town depends 
upon the output of surrounding mines it will be 
necessary to be informed regarding prospects for 
sales of output, at satisfactory figures, for many 
merchants have been ruined by the closing of 
mines, because of unprofitable output or sales, or 
because of purchase by trusts for the purpose of 
closing to limit the supply and advance the price. 

Manufacturing: Towns. —Throughout the east 
many small towns are maintained by one or more 
large factories, and often the product is one par- 
ticular class of goods. It is therefore necessary 
for the credit man to be advised regarding pros- 
pective unfavorable legislation, strike prospects 
and other causes which may result in closing the 
factories. 

Partnership. — Some of the best customers meet 
disaster because of an unsuitable partner. If the 
merchant has done well alone, it is not always wise 
to assume that the business will be a success as a 
partnership, for much depends on the associate. 



OBTAINING INFORMATION 69 

It is important that the same facts be learned 
concerning the new partner as of the former pro- 
prietor and with as great care. 

It is true, as well, that one whom you have 
formerly refused credit may change associates and 
thus become a desirable risk. 

So then whatever the change of firm may be, 
even to the admittance of a clerk to a working 
interest or the association with a capitalist, inves- 
tigate carefully into the reasons for the change. 

Competition. — " The act of endeavoring to gain 
what another endeavors to gain at the same time." 
How sharp is the competition? With whom does 
he compete? 

Sometimes we find a merchant who has suc- 
ceeded in competing with all comers and eventually 
driving them out. 

Again we find a town where all merchants strive 
for trade by winning customers with the aid of cut 
prices. 

There is much danger for the merchant who is 
selling goods on too small a margin of profit, and 
it is necessary to be advised on the conditions ex- 
isting in the way of competition. 

On the other hand there are localities (their 



70 CREDITS, COLLECTIONS MANAGEMENT 

number are few) where there is little or no com- 
petition, where all is stagnant, the business fading 
away; these may be as dangerous as the over- 
crowded town where all are scrambling for busi- 
ness. • 

Undivided Attention. —We can hardly do better 
than quote Mr. W. T. Ralph, of Louisville, Ky., 
who for a quarter of a century has been connected 
with R. G. Dun & Co. in a managerial position. 
He says : " I have no hesitancy in saying that the 
larger number of the larger failures that have oc- 
curred in the territory I have had charge of have 
grown from the fact that the merchants gave a 
divided instead of an undivided attention to 
business." 

" It often happens that a merchant, who has 
been more than ordinarily successful and has ac- 
cumulated in the natural course and increase of 
his business a surplus of means, is often tempted 
to embark in other and outside ventures. The 
accretions and success attained have proven for 
him a temptation for others to urge and persuade 
him to go into outside ventures. He thus divides 
his time, energy and capital from his original or 
parent business, and which he knows thoroughly, 
and thus causes his failure and suspension. 



OBTAINING INFORMATION 71 

" The most unfortunate trait with business men 
at the present time is that they seem to think they 
must be mixed up with a half dozen schemes and 
become promoters and builders of railroads, 
bridges, land and other enterprises about which 
they know little or nothing, and which should be 
left to those who know all about such matters, 
and they are men fitted by experience and train- 
ing in their fields to attend to them. The follow- 
ing out of this craze (for it seems in the past few 
years to partake of that nature) invariably brings 
disaster to the one business in which the individual 
is competent by education and natural ability to 
make a success. It is the old story of the shoe- 
maker sticking to his last." 

We often notice in our mercantile reports or are 
informed by our salesmen that "this man is cer- 
tainly in very good circumstances, for he has stock 
in the bank, is mayor of the town, is interested 
in the grain business, has a large farm and raises 
fancy stock. Oh, he's well fixed." It is not often 
we find a man capable of spreading himself over 
a large number of interests without spreading him- 
self too thin to be successful for any length of time. 

Let us be well informed regarding our custom- 
ers' various interests. 



72 CREDITS, COLLECTIONS MANAGEMENT 

Leases. — In some states the lease laws are very- 
unfavorable and unjust to all except the landlords. 

It is possible in some states for the wife to own 
the building where the husband conducts his busi- 
ness, making a lease for a series of years and hold 
a large stock of goods as security for payments on 
unexpired lease. 

The writer has not seen many mercantile re- 
ports, even in the states where the lease is of such 
importance, that give this information. It is nec- 
essary therefore to give this matter consideration 
in some states. 

Collating Reports With all of above informa- 
tion before us, we are now ready to collate the 
reports and make comparisons with the mercantile 
reports and signed statement, topics which will 
be discussed later. 

We have been to all the trouble and expense of 
collecting this information, and should now use it 
to the best possible advantage. Probably the best 
way to handle the information now at hand is to 
take it up systematically and dictate or write a 
report in which all this information is condensed, 
placing it before you on paper, in the same phrase- 
ology you would use to impart your knowledge of 
these facts in conversation to another. 



OBTAINING INFORMATION 73 

The comparisons of the reports made from our 
own collated information are not given in any 
spirit of complaint at the work of the mercantile 
agencies, but rather to show the necessity of using 
all these avenues of information and the value 
of each to the other. 

As a sample report, we will take an illustration 
from the experience of a credit man in following 

out this method. 

" J. Jones, Jonesville, Ind., formerly a miller and pre- 
viously farming-, traded a farm for $3,000 stock of goods, 
bought the store building for $2,000, giving mortgage of 
$1,500 due three years from date." 

Salesman reports: "Buys freely, but not of many 
houses; has entire wealth in business; stock not in good 
condition; seems inclined to do some credit business; banks 
know but little about him, but report well as to char- 
acter and habits." 

One year after starting is reported slow pay by three 
out of five houses to whom inquiry was made. Attorney 
reports wife to be interested in an estate which will net 
her about $10,000 at the death of her mother. 

The town is at present a terminus, with prospect of road 
being extended within a few years. 

Good farming country, but new. Present year's crop 
condition unusually good. Very little competition and no 
appearance of cutting prices. Has no other business in- 
terests. 

The mercantile report which follows is an actual 
copy, and, it will be seen, is a more complete and 
accurate report than many, but, notwithstanding, 
contains some information which is new and which 



74 CREDITS, COLLECTIONS MANAGEMENT 

is contradictory to report compiled, and will neces- 
sitate more investigation. We quote as follows: 

" J. Jones, Jonesville, Ind., Hardware. 

" Traveler's Report " makes the following statement: 
" Am 38 years of age, married. Commenced as above in 

Succeeded J. Smith. Formerly farming 

and milling in Cash value of merchandise 

on hand, $3,000; insured, $3,000; cash on hand and in 
bank, $250; good book accounts, $1,500; business building 
and lot, $2,000; homestead, $1,500; total assets, $8,250; 
owe for merchandise on open account not due, $1,500; 
business building encumbered for $1,000; total liabilities, 
$2,500. Property all in the name of J. Jones. Signed 

J. JONES." 

"Is said to be a good business man, having a fair trade 
and making money. Well regarded as to reputation and 
habits. In good local credit and standing and has good 
prospects for success. Is estimated worth about $3,000 
over debts and exemptions." 

The mercantile report is six months after he has 
commenced business and shows $1,500 merchan- 
dise indebtedness, $1,500 outstanding book ac- 
counts, but a reduction is shown in the reported 
indebtedness on building, which shows $500 less 
than reported to salesmen at time of starting. 
Upon investigation this was found to be an error, 
and the mortgage stood as at first, $1,500. Being 
surprised at the homestead, inquiry finds it not 
to have been paid for, but simply a contract to 
purchase on monthly payments. Without the pri- 
vate information at hand the mercantile agency 



OBTAINING INFORMATION 75 

information would be misleading; with it we are 
better able to judge of the risk. The discrepancy 
in the reported indebtedness and the large amount 
of outstanding indebtedness and the large amount 
of outstanding accounts equalizing the merchan- 
dise indebtedness is sufficient to invite caution and 
to warrant further careful investigation during the 
next few months. 

We quote from another, giving the mercantile 
agency report first, as follows: 
" J. Smith, Johnstown, S. D., Hardware, etc. 

Feb. 15, 1894. 

He is a tinner by trade, and runs a shop here, but also 
deals some in hardware. He has not responded to a direct 
application for statement, but we are told he has a very 
limited capital and owns no real estate or other available 

means. He is related to , who are engaged 

in the hardware business, but no relations exist between 
them in a business way. He seems to stand all right in 
a personal way, and does a living trade; still he is regard- 
ed too light for unsecured credit. M." 

The credit man's report, following the plan out- 
lined, is as follows: 

" J. Smith, Johnstown, S. D., age 30, married; this his 
first business venture, but he is a practical tinner; value 
of stock, $1,500 to $2,000; no insurance; real estate not 
exempt, $1,300; little, if any, indebtedness; buys careful- 
ly; store in good shape and well located in the town; 
good character and habits; this year's crop prospects very 
poor; competition moderate; has no other interests at- 
tracting his attention from his business; light expense; 



76 CREDITS, COLLECTIONS MANAGEMENT 

his father of is wealthy, but it- 
is not known that he has any borrowed capital." 

The mercantile agency report would not entitle 

him to any credit. 

The credit man's report, with the matter of in- 
surance corrected, would entitle him to a small 
line of credit 

Examples more marked than these can be found 
showing the value of this proceeding. 

It is fair to admit that instances will not be 
wanting where the mercantile report is the most 
accurate, but each will serve to correct or verify 
the other. 



CHAPTER VI 



Mercantile Agencies ; Their Use and Abuse 

We have been considering some sources of in- 
formation and some particular points of value to 
which the reporting agencies do not give so much 
consideration. 

The suggestions previously made do not cover 
all questions upon which we desire to be informed, 
but with information yet to be received direct from 
the customer through signed statement, as well 
as from the mercantile agencies, we believe we will 
be well fitted to judge of the desirability of the 
account. 

We do not care to write a history of the mer- 
cantile agencies. It probably would be of no par- 
ticular value to us, and we are endeavoring to 
condense our work so that everything written may 
be of practical value in our daily routine. 

We have and must ever have the reporting agen- 
cies; we could hardly conduct our business with- 
out them. 



78 CREDITS, COLLECTIONS MANAGEMENT 

Inaccurate as they often prove, still we must 
use them, for they are more often accurate than 
in error. 

We have in their reference books ratings of most 
business institutions organized prior to the pub- 
lication of their books, republished and corrected 
every three months. 

They have in their files detailed reports regarding 
the more important facts concerning the financial 
standing of most firms. 

But there are ways to use and ways to misuse 
these records. 

It certainly is not judicious to open an account 
because of good ratings in one or more of the 
reference books, and many meet with losses be- 
cause of a desire to save the expense of special 
report, they think "the credit is small and the 
rating is good," and conclude to grant it. 

Better that an account be never opened than to 
open it upon such information. The net worth 
on the face *>f a report may look large, but v 
must learn to dissect a special detailed report, for 
surely many firms with $1,000 net worth are better 
entitled to credit than some with $10,000, for we 
must look for available assets and many other 
features before opening the account. 



MERCANTILE AGENCIES 79 

Criticism has been passed because an order for 
small amount, paying little profit, was held until 
the reporting office could send down report they 
had in file, although ratings on their face appeared 
satisfactory, but the prudent credit man will first 
know that he wants the account before he accepts 
it. What if the order is small? It may be the 
entering wedge for larger account. 

An order not worthy of proper mercantile report 
had better be " turned down " to start with. There 
are times when it may be as well to have only one 
report from the agencies and gather the rest of 
the information from other sources, but an ac- 
count of any value or of any size merits the use 
of two agencies, for they are of value for com- 
parison and often lead to correcting one or the 
other, or, mayhap, both. 

It is probable we will use the agencies for our 
first report, excepting the salesman's report, al- 
though in the arrangement of our discussion we 
considered the outside information first, but we 
ask for the agency report, having as one reason 
our desire to have our name on the records that 
we may receive prompt report of any important 
and unfavorable change. The slothful man may 



80 CREDITS, COLLECTIONS — MANAGEMENT 

depend entirely upon the agencies, for it certainly 
is an easy way, but the cautious man will not be 
content to judge thus of any credit. The new 
reference book ought to be checked through as 
soon as received and compared with the credit 
record, and any changes of rating noted and care- 
fully inquired into. By doing this it will not be 
necessary to have as frequent detailed reports. 

If rating has been withdrawn or is not favorable 
as formerly, special reports should be obtained at 
once. 

Mercantile agencies make a mistake in not urg- 
ing greater effort and encouraging the credit men 
to assist in correction of report. 

Many credit men, thinking they possess so much 
more valuable information than others, are loth 
to impart it. 

If a more friendly and helpful disposition could 
be cultivated and a freer exchange of information 
accomplished, we would not have nearly as much 
cause for complaint. While I may possess some 
knowledge you do not, surely you know many 
things I do not, and a mutual exchange would be 
of benefit to both. 

The credit man can do much to assist the 
agencies. 



MERCANTILE AGENCIES 8l 

It seems a proper thing to do, when signed 
statement is received, to* give the agencies notice 
and allow them to copy it, and through them 
other credit men receive the information. 

Some merchants will not make a statement to 
the agencies; we note the lack of it in our reports, 
and immediately take steps to secure it; while we 
are asking for this, several others may be making 
the same request and all are indignantly refused. 
Now some one may have succeeded in securing 
statement a month before, and had copy been given 
agencies many would have been benefited. 

Withholding any information is simply blind and 
ignorant selfishness, for it perpetuates a custom 
which ought long ago to have been abandoned. 

To-day you may help your neighbor to valuable 
information; to-morrow he may help you. Then, 
too, we could help the agencies (speak it softly, 
could help ourselves, too,) if we would use a little 
discretion in refusing to pay for absolutely worth- 
less reports. It would probably prevent the de- 
livery of some reports. 

If we are not paying enough to warrant careful 
and painstaking work, then let the work be im- 
proved, if needs be, by additional charge for serv- 



82 CREDITS, COLLECTIONS MANAGEMENT 

ices. We are not yet ready to acknowledge that 
prices of reports and subscriptions are insufficient 
for the maintenance of larger and more competent 
forces. 

Looking over records at a county seat not long 
ago it was a surprise to find many chattel mort- 
gages filed six months previous which had never 
been reported. Following the matter farther, it 
was found that agencies had failed to engage any 
one to report " record items," the reason was they 
would not " pay the price." This is known to be 
an exceptional case, but it was an expensive one. 
Some firms could better have paid $100 for those 
record items than not to have had them. Let the 
agencies understand we are ready to pay for good 
work, and to assist as we can by imparting our 
information. 

All honor to the many worthy managers and 
clerks and travelers of our agencies, but this with- 
out condonation of the many carelessly compiled 
reports by immature and incompetent employes. 

There is a marked difference in reports from 
same agency, but emanating from different offices; 
some show such creditable work, and others are 
of very little value. 



MERCANTILE AGENCIES 83 

But of this we may be sure, most of the reporters 
and managers are desirous of doing this work 
honestly and justly. There is a manifest disposi- 
tion to treat the merchant in a liberal spirit. 

Ratings as a rule are too high because of the 
general disposition to speak favorably rather than 
otherwise. 

In all their work, however, they seek correct 
information. We may do them good service by 
upholding their efforts and by explaining to our 
customers the importance of making accurate and 
complete statement once a year. 

In brief, then, we need the agencies, we are 
willing they shall have proper remuneration, we 
are under obligations to them and to each other 
to assist, and we have a right to complain of in- 
accurate and careless service. 

We want to commend the weekly publication of 
conditions of trade and the issuance of carefully 
compiled statistics, giving comparative statements 
and classifications of failures with an effort to show 
cause. 

In this partisan age we have need of unbiased 
information. The same day we may read in papers 
representing opposing parties contradictory state- 



84 CREDITS, COLLECTIONS MANAGEMENT 

ments of conditions. We are weary of this, and 
seek the unprejudiced statements of conditions 
and their causes which the agencies seem to make 
honest effort to place before the public. 

It is fitting that we make quotations gathered 
from a wide correspondence, in answer to the 
question " How can the jobbers and manufacturers 
add to the accuracy and value of commercial re- 
ports?" 

These replies are from men high in credit coun- 
cils, and must carry with them great force. We 
quote as follows: 

" By insisting on reports giving trade opinions 
more largely; experience is the teacher* that 
teaches." 

" The mercantile agencies are powerless to add 
to their efficiency. They can do it only through 
the moral support of their patrons and by public 
sentiment favoring their demands." 

" By a closer association, a freer and more frank 
exchange of experience, and, most of all, by a 
radical change in the policy adopted by most cred- 
itors towards dishonest debtors. By reporting to 
agencies parties slow in payments and those re- 
turning goods without just cause; said reports to 



MERCANTILE AGENCIES 85 

be made on blanks furnished by the agencies." 

" Furnishing the agencies with copies of all 
property statements made you, and with all other 
information, favorable or otherwise, besides by con- 
certed action on the part of a number of the 
subscribers to the agencies, enough pressure should 
be brought to bear to compel them to have travel- 
ing reporters, who should go over the entire coun- 
try at least twice a year investigating the condition 
of every one, old and new, and by compelling the 
agencies to use a certain formula for the details 
of all reports. As it is now, some reports are old, 
some new, some full and satisfactory, others meagre 
and almost worthless." 

We also asked the agencies to speak for them- 
selves and are pleased to quote: 

" When our patrons will look upon our institu- 
tion as an agent, and will co-operate with us as 
far as it is possible for them to do so, the work 
of the agency may be very much improved, and 
our patrons may co-operate with us in these sev 
ways : First, by requiring their customers to make 
property statements, which statements may be 
turned over to us for investigation. Second, by 
requiring from their traveling men opinions which 



86 CREDITS, COLLECTIONS MANAGEMENT 

may also be turned over to the agency for inves- 
tigation. Third, by notifying us of business changes 
in fact or in contemplation that may reach them, 
as they sometimes do, before our correspondents 
notify us. Fourth, by notifying us when a cus- 
tomer is getting slow and unsatisfactory as a cus- 
tomer. Fifth, by giving us a list, by counties, of 
their customers, and informing us of new custom- 
ers picked up. With this last information in our 
possession, it would be possible for us to place in 
the hands of representatives the names of those 
in whom we are particularly interested, and with 
this list a request that special attention be given 
to the persons named, and that we be notified 
promptly of any weakness, disaster or change. In 
order to get our attorneys to give such attention, 
inasmuch as they are paid for their work mainly 
by the fees they get out of the collection business, 
it would be necessary, also, for subscribers to en- 
courage attorneys to the necessary watchfulness 
and to give the desired information, by giving 
them some collection business. Unfortunately, the 
attorneys of our district get little work of this 
character." 

" In no manner could our patrons co-operate 



MERCANTILE AGENCIES 87 

with us with better results than by giving our 
representatives some encouragement to watchful- 
ness." 

" I am now having prepared a blank which I 
propose to send to our subscribers. On these 
blanks I expect to get from subscribers the names 
of their customers. I expect them to send these 
names to our representatives to report at once, 
upon any one named whose condition may be 
unfavorable to a credit. I shall say to our repre- 
sentatives that we desire them to use the telegraph 
lines freely and to notify us promptly of business 
changes, of fires, of accidents, etc., and that upon 
the receipt of such information an effort will be 
made here to get from our jobbers, who will be 
benefited by such information, some business in 
the way of collections for them." 

All that has been said thus far applies more 
particularly to such agencies as Dun's, Bradstreet's, 
and others of that class, but some other methods of 
reporting may be mentioned in this connection. 
We have the agencies which may more properly 
be called collection bureaus, for it is their chief 
aim to make collections to the best advantage, 
issuing lists of attorneys and furnishing report 



88 CREDITS, COLLECTIONS MANAGEMENT 

blanks of their own, so that inquiry may be made 
of the attorney direct by using the form furnished, 
thus indicating your membership and your obliga- 
tion to attorneys of whom you inquire. 

The attorneys are under contract to reply to 
these inquiries and to make collections upon spe- 
cified terms. 

These blanks sent to a conscientious attorney 
ought to receive more than the ordinary attention, 
but many are returned with evidence to the con 
trary. 

In justice, it might be said that subscribers do 
not favor the reporting attorney with business as 
often as they could to advantage. 

Then we have the collection agencies, which 
issue lists of names uoon whom drafts have been 
made, showing also b / number the office through 
which the draft was made; subscribers interested 
may receive report of amount of claim and brief 
history of efforts to collect. 

This is certainly of value, and often serves as 
one of the first and most sure indications of weak- 
ness, so far as slow pay can thus be construed. It 
is well to bear in mind, however, that there are 
many disputed accounts thus placed and many 



MERCANTILE AGENCIES 89 

drafts are handed to these agencies by distant 
creditors, regardless of local conditions. Good 
sound judgment is needed in consideration of the 
influence these reports should have in determining 
the line of credit. The fact of a name appearing 
in these lists once or f wice is not conclusive evi- 
dence of conditions mt must demand careful in- 
quiry into causes. 

But we have ano ner system of reporting which 
theoretically approaches the model system, and 
needs only more hearty co-operation on the part 
of the credit men to bring it to perfection. 

By its system the several experiences are col- 
lected and compiled into a report, including the 
experience of the inquirer, and a copy of the re- 
port furnished to all who have contributed, no 
member receiving a copy who has not contributed 
an experience towards same, so that each member 
contributing is assured of receiving in return the 
experiences of all other members who receive his, 
making the interchange fair and equitable. Thus 
members interested contribute their individual ex- 
periences, and in return receive a copy of the 
result or combined experience. A key instead of 
names or numbers being used, all possibility of 



pO CREDITS, COLLECTIONS MANAGEMENT 

members becoming acquainted with each other's 
accounts or customers is avoided. Members al- 
ways receive information in excess of that which 
they contribute, for the reason that they receive 
the several experiences of the other members in- 
terested in return for their own individual experi- 
ence. The names of those inquired for are placed 
before all members by daily sheet, so that none 
of a member's customers can be inquired about 
without his having an opportunity to contribute 
his experience and in return to receive a copy of 
the report. Furnishing incorrect or misleading 
information forfeits the membership. 

It is not the intention to attempt to furnish the 
information now being supplied by other agencies, 
or to undertake collections, but to systematically 
collect, compile and furnish members interested 
with the trade liabilities and dealings of retail 
merchants. 

Among questions on report blank are the fol- 
lowing: Highest credit? Amount owing? Amount 
due? Secured? When due? Refused? Pay drafts? 
Pay notes when due? Make unjust claims? Ex- 
tended? Terms? Ever collect by attorney? Satis- 
factory account? How long a customer? Now if 



MERCANTILE AGENCIES 91 

added to this we could more often have on same 
sheet which give the various experiences of the 
trade, a signed statement direct from the firm 
reported, we would have the two most valuable 
items of information. Some are advocating the 
organization of more agencies for specific lines of 
trade, but the objection to this is mainly in the 
fact that the information is incomplete in these 
days of department stores, where nearly every line 
is handled in one store, and there seem not to 
be many dealers in one exclusive line of trade, so 
that report from jewelers, or boot and shoe, or 
furniture exchange must necessarily be very in- 
complete, although valuable as far as it can report. 



CHAPTER VII 



The Value of Signed Statements and the Need of 
Co-operation 

We have discussed methods of gathering and 
compiling information from various sources, and 
are now prepared to consider the question of ob- 
taining definite and complete signed statements of 
financial conditions direct from the applicant for 
credit. All items of necessary and important in- 
formation have not been discussed under the sub- 
headings, but if former chapters have been read 
carefully, we believe enough has been suggested 
so that we may, under this topic, complete our 
treatise on " Valuable Information and Methods 
of Obtaining It." In the forms already published, 
and in the form used for " Signed Statements/' 
we have endeavored to include, either definitely 
or suggestively, all the partiular topics upon which 
we have need to be informed. We do not mean 
to say that this book is intended to contain all 
the forms in use in the Credit Departmtent we 



VALUE OF SIGNED STATEMENTS, ETC. 93 

are attempting to describe, for in this volume we 
are unable to touch upon forms of guarantee, 
commission contracts, leases, collection records, 
draft, note or check blanks, or records for same; 
suspense ledger, attorney contracts and other feat- 
ures of Credit and Financial work. 

The Mercantile Agencies furnish us altogether 
too few signed statements. Some merchants much 
prefer to make their statements, if indeed they 
will make any, direct to their main creditors; for 
that reason it is important that the jobbers give 
copies to the agencies as suggested in previous 
chapter. It is advisable to encourage more and 
more the efforts of the agencies in this work, and 
to induce our customers to adopt the plan of mak- 
ing statement, once or twice each year, giving them 
to understand that it will avoid the annoyance 
of receiving this request from many of their cred- 
itors. 

It is not nearly as difficult to obtain these state- 
ments as many appear to believe. 

One house having the reputation of securing 
more signed statements than others reports that 
they rarely meet with refusal. 

They do not always ask for statement imme- 



94 CREDITS, COLLECTIONS MANAGEMENT 

diately upon opening the account, but often wait 
for a favorable opportunity. If the mercantile re- 
ports are unsatisfactory or conflicting, if the cus- 
tomer makes a partial statement in letter, or if 
an extension is requested they are alert to seize 
any favorable opportunity to make the request. In 
their letter requesting statement they are caref 
to avoid any intimation of fear of dishonest pur- 
poses, or even of unsafe conditions, but frankly and 
honestly state their reasons; if there is discrepancy 
in reports, it is carefully named, avoiding any 
breach of confidence. If insurance is not reported 
a casual inquiry regarding it often leads to the 
desired results. They indicate their custom of de- 
pending chiefly upon information received direct 
from their customers, but ask if recent report has 
been made to mercantile agencies, and if so, about 
what date and if report still remains correct in all 
material points. There is an effort to write in a 
confident manner, expecting compliance as a mat- 
ter of course, and enclosing blank which will be 
plain, simple, brief, but in all ways complete for 
the purpose, requesting careful reply to all ques- 
tions, and agreeing, if desired, to furnish copy i 
mercantile agencies, to correct reports they now 
have. 



VALUE OF SIGNED STATEMENTS, ETC. 95 

We treat under the same heading, " The Need of 
Co-Operation," for we believe in this particular 
feature more than any other; nothing but a move- 
ment that is co-operative and educational in a 
measure will be as successful as its importance 
demands. 

It has been asked, would it be practicable 
through co-operation to establish a standard of re- 
quirements for a credit basis? 

Each credit man has a standard or should have 
a certain standard to which all successful appli- 
cants for credit must measure. Some, one set of 
requirements; another, a quota entirely different. 
One may be disposed to overlook a point of weak- 
ness and grant credit; another would think that 
one weakness vital. 

Under the existing conditions of the various and 
varied state laws, that credit which would prove 
reasonably safe for a creditor near his debtor, 
would be an unsafe and hazardous one for a dis- 
tant creditor. 

There are some unavoidable losses which we 
cannot foresee, but a very large proportion of our 
losses might be avoided if we could make the 
competitive spirit subservient to existing necessi- 



g6 CREDITS, COLLECTIONS - MANAGEMENT 

ties for co-operation and putting aside all jealousies 
of location, capital and empty honors, try to get 
together in an endeavor to prevent losses for all 
and not each for himself. Let us try to find a 
common ground where it will be practicable to 
co-operate and see if we cannot agree on a few 
vital points, to gain which each will be willing 
to lend his influence. 

Credit is too cheap, too easily obtained. How 
common and how true is the expression, " My 
credit was too liberal for my own good," and 
while it should not be the province of the credit 
man to make it difficult to establish credits, it is 
his legitimate work to place such restrictions as 
will cause the merchant to keep within the bounds 
of safety. 

It is not at all likely that twenty-five houses in 
the same line could have a contract so constructed 
that every one of the twenty-five houses would 
sign it, agreeing to insist on compliance with cer- 
tain requirements before granting credit, and if it 
was signed it would probably not be honestly 
maintained a month; but if a large body of repre 
sentative credit men could give moral support and 
strong recommendation to certain important feat- 



VALUE OF SIGNED STATEMENTS, ETC 97 

ures and combine in various and persistent efforts 
to show their value, it certainly would have good 
results. Co-operation will not be complete, but 
partial, and the success of those concerns operating 
under approved policies will induce others to adopt 
the same general methods. 

This is written from a location where all our 
customers are in small towns, many more towns 
of 500 than 2,500 population, and the difficulty of 
gaining satisfactory and complete information in 
these little towns is far greater than in larger 
places, for with only one or two banks, if any, an 
attorney, possibly more interested in the local mer- 
chant than in your safety, and with capital often 
so small that one year's crop failure in the new 
country may deplete so far as to ruin the merchant, 
and with the necessity of large credits to keep up 
with the demand of the business, the extreme dif- 
ficulty of our position may be hardly imagined. 
Not for one moment would we indicate that those 
of other parts of the country do not have many 
difficulties with which to contend; in fact, each 
thinks he has " the hardest place to fill." 

In an endeavor to co-operate, we will find many 
points emphasized in one locality that are not im- 



98 CREDITS, COLLECTIONS MANAGEMENT 

portant in another, and we shall need to lend 
support to each other along some lines we count 
of little value. 

After dealing for a time we can form pretty 
accurate conclusions as to business qualifications, 
but while we are learning these, our customer is 
getting in deeper and deeper; while experience, 
age, locality, etc., etc., are very important points 
upon which to be posted, the all important ques- 
tion is, how much is your applicant for credit 
actually worth, and in what shape is he worth it, 
and what proportion of his assets are readily con- 
vertible to meet his liabilities. We are inclined 
to take too much for granted, and we certainly 
depend too much on estimates. Send out half a 
dozen inquiries as to value of stock, and you will 
find wonderful variations. In one case estimates 
made the same day varied $3,000, $4,500, $6,500 
and up to $15,000. Now we cannot believe that 
the informants cared or knew or appreciated the 
importance of having these facts. Then often- 
times the merchant only estimates his stock and 
does not invoice it. 

This statement, no doubt, seems strange to credit 
men in houses whose accounts are with large deal- 



VALUE OF SIGNED STATEMENTS, ETC. 99 

ers, but the credit men whose business is with the 
retail dealers will corroborate it from their own 
experience. Many small dealers do not appreciate 
the benefit of knowing where they stand, and some 
can recall words of thanks for having insisted on 
an invoice and a list of indebtedness and a culling 
out and clearing up of outstandings. As one firm 
said a short time ago, " if some one had insisted 
on this before, we might have had time to trim 
our sails and avoid the wreck." 

We invite failures when we make such a scramble 
for business that we do not insist upon knowing 
exactly how our debtor stands, and that not from 
a general statement, but by a detailed and complete 
statement once a year. 

Do we not all concede the value of having a 
firm make its own statement and carefully verifying 
it and asking explanation of discrepancies? If so, 
then may we not conceive of some plan to work 
as one for the accomplishment of this purpose? 
Agencies strive for it, but the merchant finds he 
can obtain credit without it and often refuses to 
give it. 

Is it not just that an applicant for credit who 
refuses to give detailed information, should suffer 



IOO CREDITS, COLLECTIONS MANAGEMENT 

from impaired credit, and is it not the general rule 
that if he maintains this position after having had 
explained to him the benefit of a true statement 
of his affairs, disaster comes to him before many- 
years? 

Let the history of our courts tell their story of 
the value of a signed statement; one may talk to 
you regarding his worth, but his denial of state 
ments, made to you in conversation, will be of as 
much weight as your truthful account of your con- 
versation; but if your statement is signed, it will 
then be evidence hard to contradict. More than 
this, the courts have held that a person making 
a statement to a mercantile agency is virtually 
making a statement to the agents of his creditors, 
and those with whom he is doing business, hence, 
that he is quite as liable on a criminal action as 
he would be if he made the statement direct to 
a creditor. 

In the next chapter we give a list of Supreme 
Court decisions, based upon actions brought be- 
cause of incorrect and false statements of financial 
conditions, and will not cite further at this time. 
But the value of a signed statement is treated very 
lightly by many because of improper and faulty 



VALUE OF SIGNED STATEMENTS, ETC. IOI 

methods in its construction and in its verification 
and correction. It will not do to take statement 
as sent in and file it away as correct, for even if it 
is made honestly, according to his understanding, 
it will need sifting and changing somewhat. In- 
surance, annual sales and expenses are among 
the most important elements often overlooked. 
The value of the land described should be verified, 
the records of the courts should be examined — 
deeds, mortgages, liens, etc. The records should 
also be examined for judgments and mortgages, 
real or chattel. 

The most valuable statement is that one made 
after consultation at the merchant's place of busi- 
ness, and the value of stock, accounts, notes, etc., 
placed at their legitimate values. 

Where possible, a list of indebtedness, by name 
and amount, should be made and afterwards veri- 
fied, the list of liabilities is by far the most im- 
portant, past due and not due amounts being listed 
separately. There is one thing about reported 
liabilities; they never shrink, but assets do. 

Well, you may say, this is too much detail and 
too much work; but it pays and can be done at 
little expense and very successfully, if the jobbers 



102 CREDITS, COLLECTIONS MANAGEMENT 

and manufacturers operating in a certain district 
would co-operate. 

In an editorial in June, 1893, number of THE 
LAWYER AND CREDIT MAN, Mr. W. C. 
Winsborough stated: 

" The correctly prepared statement well verified 
is one, if not the best method of accurately ar- 
riving at a creditor's real worth and standing. The 
blanks we have published have been an assistance 
in showing the best and most approved forms to 
use, and if we insist on having them completely 
and accurately filled out, we will have a tangible 
basis to act on, and will undoubtedly make fewer 
bad credits. 

" The way our creditors treat us depends much 
upon the way we treat them, and if a large num- 
ber of wholesale houses band together and demand 
a property statement before placing orders and 
at other times when they deem it necessary, it 
will not be long until the retail merchant will recog- 
nize it as a right of the wholesaler to ask such, 
and give them willingly and correctly. Education 
is the chief thing necessary in this particular, and 
we would advise that articles along this line be 
printed by the wholesalers and sent to their cus- 
tomers. 



VALUE OF SIGNED STATEMENTS, ETC. 103 

" Buying goods on credit is not different from 
borrowing money from a bank. To sell with 
safety, you should use the same precautions you 
would if you were a bank officer and applied to 
for a loan. What merchant would deny the right 
to his bank to have a thorough and detailed state- 
ment? He acknowledges it the banker's right, 
and why? Simply because the banks have always 
demanded it. They have taught their customers 
it was a condition precedent to lending them 
money. Cannot the wholesalers do as much? They 
can if they will. Agree to do it and then do* it? 
If you can't get others to assist you in the en- 
deavor, decide to do it yourself, and then do it, 
and in a little while you will be selling to a better 
class of trade and making fewer losses." 

James G. Cannon, vice-president of the Fourth 
National Bank of New York, in an address on 
bank credits before the Drexel Institute, Phila- 
delphia, on this subject, from a banker's point of 
view, says: " I contend that no matter how sound 
a firm may be, when they desire to borrow from 
an institution where they keep their account, or to 
sell their single name paper — which is merely a 
promise to pay a certain amount of money at a 



104 CREDITS, COLLECTIONS MANAGEMENT 

given time without collateral, they should be will- 
ing, without any hesitancy, to make a full and 
frank showing of their condition in writing over 
their signature, and when declining to do so, I 
believe that we should give no consideration to 
their application for discount. After gathering care- 
ful statistics on this subject, I have reached the 
conclusion that when a borrower refuses absolutely 
to give any information in this way, his credit is 
impaired, and it is only a question of time when 
misfortune will overtake him." 

Each credit man prefers his own judgment as 
to honesty, ability, location, prospects of success, 
etc., but the foundation of all is financial responsi- 
bility; then build the rest around it to strengthen 
or weaken the position according as the other 
requirements under consideration seem to affect it. 

If our merchants knew that they would be re- 
quired to make a statement of their financial con- 
dition once a year there would be a disposition 
to keep business better in hand, and we maintain 
that we will do the merchants of the world a favor 
to let the word go broadcast that for the safety 
of the commercial world the creditor insists on 
his right to know definitely the financial standing 
of his debtors. 



VALUE OF SIGNED STATEMENTS, ETC. 105 

In an effort to find opinions of other credit men, 
and those held by the great mercantile agencies 
concerning the questions we have touched upon, a 
number of inquiries were mailed, and with very 
few exceptions it was found that the value and 
necessity of signed statements were conceded, but 
few require them to any extent, several giving as 
a reason that merchants felt that it was not required 
and that they could obtain credit without it, so, 
for fear of losing a customer, this important ele- 
ment for determining credit was omitted. 

There seems to be a universal agreement that 
refusal to grant credit where signed statements 
are not made would result in materially lessening 
the number of failures, as well as the average of 
liabilities, but while all long for such a day, few 
are hopeful of its dawning, forgetting that there 
are comparatively few houses doing a large amount 
of business in the same district, and that the ques- 
tion need not prove so formidable as supposed. 

But one says, " a party that is slow or insolvent 
will not make a statement " ; all the more reason 
for dropping him from our credit lists. Another 
says, " if he is practically insolvent, he will make 
a false statement ; " all the more need then for 



106 CREDITS, COLLECTIONS MANAGEMENT 

the statement, and for a careful verification of all 
statements. 

Another has said, " if wholesale dealers had the 
backbone to make examples of some of these 
debtors who deliberately make false statements 
for the purpose of beating their creditors, and spend 
a little money to put them where they belong, 
we would very soon find more reliance could be 
placed both upon signed statements and upon 
commercial agency reports as well," but we may 
not wish to forego the pleasure of a settlement, 
and many of us will testify to the efficacy of the 
false statements in securing settlements. 

One great commercial agency says : " We find 
the objections to giving statements among those 
of little business experience and ability, or those 
who have something in their affairs to cover up, 
or from young men making their first venture 
in business who fancy that the world is theirs." 

" Thorough understanding of what our safety 
requires would soon establish certain customs and 
rules among us, which the buyer would find it 
necessary to comply with," says another. 

Give us a corroborated statement of his condi- 
tion, and without any further machinery each credit 



VALUE OF SIGNED STATEMENTS, ETC. I07 

man may be trusted with his own judgment of 
advisability and desirability of account. Let us 
once be unitedly and fully determined in what we 
want, and then settle on some method to accom- 
plish it. 

If we are agreed, then, upon the great import- 
ance of this element in determining credit, may we 
not decide to uphold and give strong support to 
efforts for the accomplishment of this purpose? 

May we not be determined in all our corre- 
spondence and in all conversation with merchants 
to explain the benefits to them of a correct show- 
ing of their condition? May we not have a settled 
purpose that we will so instruct our salesmen that 
a new customer may be prepared by him to make 
a statement, if he has not already done so? May 
we not be willing to assist each other by replying 
in detail, so far as possible, to inquiries from other 
houses selling the same merchants, and if we know 
unfavorable features in the affairs of the one in- 
quired about, be honest in reporting? And shall 
we not, by organizing a permanent association 
for annual discussions of these great questions, 
perpetuate and increase the intense interest now 
happily being awakened? 



I05 CREDITS, COLLECTIONS MANAGEMENT 

Mr. Cannon, whom we have previously quoted, 
further said in a valuable address some years ago: 

" And finally, what is his present financial con- 
dition? This should be gathered from a statement 
over his signature, giving in detail his assets and 
liabilities. This statement should be given to the 
bank bearing the firm name, its location, its busi- 
ness and its branches, if any. It should state that 
it is made for the purpose of procuring credit with 
the bank for its negotiable paper, and that it is a 
fair and accurate showing of the financial condition 
of the firm on a given day of the year. It should 
also show a list of assets as to cash, bills receivable, 
good accounts, merchandise, (and especially how 
valued) whether any real estate, machinery and 
fixtures, if any. And should specify any other 
assets and whether any of the assets are pledged 
as collateral. The statement should, furthermore, 
show the liabilities as bills payable for merchandise, 
bills payable to banks, open accounts, loans or 
deposits, mortgages or liens on real estate. It 
should also specify any of the liabilities which are 
secured by collateral, and by deducting the lia- 
bilities thus stated from the assets, show the net 
worth. If there are partners in the concern, the 



VALUE OF SIGNED STATEMENTS, ETC. 109 

statement should also show the individual worth 
of the respective partners outside of the business, 
the names of the general partners in full; names 
of special partners, with amounts contributed by 
each and until when; should show contingent lia- 
bilities, such as accommodation indorsements and 
indorsed bills receivable outstanding. It should 
show connection of each partner in other business, 
if any; insurance carried on merchandise and on 
real estate; the amount of sales preceding year; 
expense of conducting business preceding year; 
time present firm has been in business and whom 
it succeeded, giving date of trial balance proof, 
and the time of balancing books. This statement 
should be signed by the borrower, and should 
show his financial condition based on his last in- 
ventory. It should indicate whether the inventory 
was an actual one or an estimate; if an actual one, 
by whom taken; if an estimate, by whom made." 
And our editor added as comment: 
" This is from a banker who uses the mercantile 
agencies for all they are worth. Did you ever 
know an honest man or one in a good condition 
object to your knowing as much about his business 
as he does? Then who is it that objects, or makes 



IIO CREDITS, COLLECTIONS MANAGEMENT 

a false statement? The man you must watch, who 
is dishonest, or is in bad condition. Would it not 
be well to have these refuse, and leave them alone? 
Require statements and let your customers know 
you require them, and let those who refuse to make 
them buy from your competitors." 

We append a statement form which we believe 
contains the best elements of many forms with 
which we have been favored from various sec- 
tions of the country and many lines of business.* 



* See Appendix I. 



CHAPTER VIII 



The Proper Use of Statements and Some Court 
Decisions 

In our last chapter we discussed the signed 
statement and plans for obtaining and verifying it, 
and now that we have the statement, we want 
to know what it may be worth to us and how to 
use it. 

We will not in this chapter analyze the signed 
statement or discuss further its value in determin- 
ing the line of credit, but will confine our discus- 
sion to its importance in effecting settlements and 
collecting accounts and rescinding sales, or its force 
and value in criminal prosecutions. 

In previous chapters we discussed only the 
signed statements, but a practice which has been 
of great value to some credit men may well be 
referred to here. 

There come to our desk every day debtors from 
whom we may have taken statement, as well as 
some from whom we have never exacted a signed 



112 CREDITS, COLLECTIONS MANAGEMENT 

statement. Perhaps they mention, incidentally, 
something of their condition; they may refer to 
borrowed money or their intention to pay some 
debt, or perhaps they are delinquent and name 
some one who has agreed to loan them money. 
Many of these remarks are well worth jotting 
down on a convenient scratch block, noting date, 
by whom spoken, in presence of whom, sign your 
name to it " as mentioned in conversation " or 
" in answer to inquiry " and file in proper place. 
Especially is this a good plan when endeavoring 
in longer conversation to gather certain facts. 

The collection of more than one account can 
be traced to this practice, for even this kind of 
evidence is valuable, although we would not, by 
any means, place it on a par with the carefully 
made statement signed by the debtor himself for 
an avowed purpose. 

Mr. Thomas Cratty names as the two objects of 
property statements: 1st. "To obtain goods on 
credit." 2nd, " To avoid trouble afterwards." This 
for the buyer, but for the vendor they are for the 
purpose, ist, of assistance in determining a line 
of credit; 2nd, as an aid in collecting from those 
who have misrepresented. Mr. Cratty further says : 



PROPER USE OF STATEMENTS, ETC. 113 

" For the seller to determine the safety of the 
proposed credit involves intelligent judgment of 
men and writings. 

" Such statements should be signed by each 
member of the firm proposing to purchase on 
credit. If the firm name be signed, it may often 
be difficult to determine which member of the 
firm appended the signature, or whether it may 
not have been done by a clerk. In such case the 
partner not signing may deny all knowledge of 
the transaction, and it might be difficult to prove 
any actual knowledge of the fact or any concur- 
rence on his part. The statement should specify 
the name of each partner, so that it will appear 
from the face of the paper whether all have signed. 
In case of a criminal prosecution, or of proceeding 
for fraud in making a false statement, it is of great 
importance and in some cases indispensable to 
have the proper signatures. 

" If the buyer will admit in a letter that a certain 
agency report is true, then such report becomes 
in effect his written statement, and while it might 
not in some cases, even if false, be sufficient upon 
which to found an indictment or criminal prosecu- 
tion, yet it would answer in most cases as the 



114 CREDITS, COLLECTIONS MANAGEMENT 

foundation for a civil prosecution for fraud or as 
a ground for re-taking the goods." 

There is much force in this quotation, but on 
the other hand we find much satisfaction in the 
case of Schram et al vs. Strouse et al decided 
October nth, 1894, by the Court of Civil Appeals 
of Texas: 

Statement of Facts. — A merchant placed his 
business in charge of his son, who made a state- 
ment in July to a commercial agency as to the 
assets and liabilities of the father, the same to be 
used as a basis of credit. His father was ignorant 
of the fact that his son had made and furnished 
such statement, and had, in fact, a large indebted- 
ness which he termed his private debt, of which 
his son was ignorant, and which was not included 
in the statement. The statement so furnished 
showed a surplus of $55,000 of assets over liabilities, 
when, in fact, the father, unknown to the son, was 
insolvent. In the following February, the agency 
asked for a statement of his then condition, and 
the son, who still remained ignorant of his father's 
affairs, furnished a copy of the previous report, 
and stated that in the July following he would 
furnish another statement. In June the merchant 



PROPER USE OF STATEMENTS, ETC. 115 

in person bought a bill of goods from plaintiffs, 
who relied on the statements above. In July the 
merchant assigned. At the time of the purchase 
his business reputation was good, and he had al- 
ways paid his bills promptly. 

Held: I. That it was the duty of the merchant, 
in placing his business in the hands of his son, to 
inform him of his actual financial condition, so 
that his statements, to be used as a basis of credit, 
would not be false or misleading. 

2. That placing his business in the hands of 
his son authorized the son to make statements 
of credit. 

3. That a false statement by the son, through 
ignorance, under the circumstances, was in legal 
effect the false statement of the father. 

4. That the plaintiffs were justified, regardless 
of the time that had elapsed since the last report, 
in relying on the good reputation of the merchant, 
and upon the reports of the agency, in the absence 
of any circumstances to excite suspicion or inquiry, 
and were not guilty of neglect in not requiring a 
personal statement of defendant on the occasion 
of his purchase. 

5. That the last statement furnished was in legal 



Il6 CREDITS, COLLECTIONS MANAGEMENT 

effect a representation; that it showed the then 
condition of defendant, except as it might be modi- 
fied by variation of the stock on hand. 

6. In an action against the assignee for goods 
sold to the assignor, which could not have been 
placed in stock long before the assignment, where 
said assignee refused to make any effort to identify 
said goods or to allow plaintiffs to do so, and did 
not undertake to prove that he did not have them 
when demand for them was made, or to otherwise 
account for them, he cannot object to a finding 
that the goods passed into his hands. 

In verifying a statement or before filing it away, 
find excuse to write a letter or two about it, call- 
ing attention to something not quite clear, or 
have some reasons (they are easily found) for writ- 
ing; all of this for the purpose of further com- 
mitting the party to the accuracy of the statement. 

If it is a partnership and all parties have not 
signed it, ascertain if they all knew of the state- 
ment, and in correspondence mention the main 
features in it. Some of these may appear as im- 
material points, but sometimes a case hinges on 
some such turn as suggested. Again we quote 
from Mr. Cratty: 



PROPER USE OF STATEMENTS, ETC. 117 

" The wise credit man will, from such state- 
ments and from correspondence with the debtor, 
judge of the character of the party and as to 
whether the writing can be relied upon with rea- 
sonable safety. 

" Civil prosecutions, aside from ordinary suits 
to collect, involve claims for damages for fraudu- 
lently obtaining goods under false statements. 
Such proceedings are usually actions for fraud or 
proceedings by capias and special bail. Such pro- 
ceedings are necessarily preferable to criminal 
prosecutions. Prosecutions criminally are not fa- 
vored by the courts when it can be seen that they 
are resorted to mainly for collection purposes. In 
fact, many of our courts are averse to a creditor 
pursuing either a civil or criminal remedy which 
involves the arrest or imprisonment of the debtor. 
I think courts sometimes show more leniency than 
is proper toward a fraudulent purchaser of goods. 
No good reason is apparent why a swindler of 
that character should not be prosecuted as vigor- 
ously as one who steals horses or other property 
in the night time." 

And after referring to the Illinois statute, which 
is convenient for most of our readers, and which, 



Il8 CREDITS, COLLECTIONS — MANAGEMENT 

for want of space, we do not quote, he continues : 

" Most states have similar statutory provisions, 
and there is no good reason why merchants and 
manufacturers should not have the full benefit of 
such enactments. The seller of goods is entitled 
by law to his pay, and has a perfect right to resort 
to all the methods provided by law to that end, 
and to punish those who defraud him criminally 
or otherwise. 

" The re-taking of goods may be by writ of 
replevin or otherwise, and is based upon the idea 
that the purchaser, because of his fraud or false 
statement, has obtained no title to the goods. 
Actual possession does not necessarily mean a valid 
title or the right to retain possession, and the mer- 
chant who parts with the possession, although in- 
tending at the time a sale as well as a delivery, 
may resume possession, peaceably or by process 
of law, upon the theory that the fraud of the 
purchaser so vitiated the transaction that no title 
passed to him." 

We have obtained these statements and carefully 
saved them, not alone that we may be enabled to 
determine upon a line of credit, but for the further 
and very forcible reason that, sad as it is to ac- 



PROPER USE OF STATEMENTS, ETC II9 

knowledge our lack of faith in the truthfulness of 
our business friends, still it is too often the case 
that we are completely misled and deceived and 
occasionally with an evident intent. 

So then, we are frank to say, we may want to 
use these statements and representations to force 
a settlement, to show grounds for rescission of 
sale, to attach or replevin property or for evidence 
in a criminal prosecution. Probably one of the 
most common cases is the secured relative, whose 
borrowed money has always been omitted from 
statements, but who can show a bona fide claim. 
After the failure we may call upon the debtor, 
gathering all data possible, when this indebtedness 
was incurred, etc., etc., and then bring our state- 
ment out to compare and to prove its false char- 
acter, and to " lay down the law " and in many 
cases force a settlement without resort to the courts. 

Many credit men could recite case after case 
that never got to the courts, but the representa- 
tions made saved the account. 

If credit men better knew their rights in the 
courts, there would be fewer losses. 

The author is not an attorney, as many kind 
letters received would seem to indicate to be the 



120 CREDITS, COLLECTIONS MANAGEMENT 

belief of many of our readers, but in treating this 
question has had the use of the best law libraries, 
and has endeavored to cull out a few important 
cases that have been decided in the higher courts 
of several states. 

The few references which we make are not meant 
to be exhaustive, but are intended to show several 
phases of this important question, and to awaken 
an interest for further investigation, the means of 
which must be at hand in every jobbing center. 

In order that a person induced by fraud to part 
with his property may claim a return thereof, he 
must at the earliest moment after discovery of the 
fraud rescind the contract. 

Musick vs. Gatzmeyer, 47 111. App., 329. 

" Litigations quite recently terminated in Mas- 
sachusetts, Michigan, New York and Wisconsin, 
respectively, exhibit some peculiar features of the 
attachment laws of the present day. For example, 
in the Michigan case of Emerson vs. Detroit Steel 
& Spring Company, (58 N. W. Rep. 659,) an as- 
signee for the benefit of creditors filed a bill in 
equity for the purpose of setting aside attachments 
claimed to have been wrongfully levied on the 
property of his assignor, before the assignment. 



PROPER USE OF STATEMENTS, ETC. 121 

Such a proceeding is held to be entirely competent 
under the equitable jurisdiction and practice of 
the Circuit Courts in that state. One peculiar 
feature of that case appears to be that the attach- 
ments in question were sued out upon the ground 
that the defendant in the attachment ' fraudulently 
contracted the debt and incurred the obligation ' 
sued upon. The fraud complained of consisted 
mainly in the making by the debtor of false state- 
ments, as to his financial condition, to Dun's Mer- 
cantile Agency. Upon the strength of these false 
statements, he procured a fictitious commercial 
rating, and, upon the strength of such false rating, 
he obtained goods on credit from the plaintiff in 
attachment. The court held that this was a fraudu- 
lent contracting of the debt, and incurring of the 
obligation within the meaning of their attachment 
laws." 

New York is one of our most prominent whole- 
sale and manufacturing states, conservative, careful, 
not inclined to enact laws hurriedly, and it is a 
great satisfaction to credit men to find that the 
jobbers and manufacturers have, even at this late 
day, succeeded in having enacted a law which every 
state in the union should hasten to have incor- 



122 CREDITS, COLLECTJONS — MANAGEMENT 

porated in its code, we refer to a new ground for 
attachment in New York which is created by the 
following amendment to the second clause of Sec. 
636 of Civil Procedure of the State of New York, 
and went into effect Sept. 1, 1894. (Laws 1894, 
Chap. 736). 

" Or where for the purpose of procuring credit, 
the defendant has made a false statement in writ- 
ing under his own hand or signature, or under 
the hand and signature of a duly authorized agent, 
made with his knowledge and acquiescence as to 
his financial standing." 

Misrepresentation made by a purchaser of goods 
as to his financial condition must be made to the 
vendor or to a commercial agency, in order to 
constitute such fraud as would avoid the contract 
of sale. 

Staver & Abbott M'f'g Co. vs. Coe, 49 111. App. 
426. 

Where a vendor relies partly upon a false state- 
ment made by the vendee to a commercial agency 
as to his financial credit, and partly upon the report 
of the agency, he may rescind the sale. 

Lowdon vs. Fish, Tex. Civ. App. 27 South West- 
ern Reports 180. 



PROPER USE OF STATEMENTS, ETC. 123 

Plaintiffs, on receipt of defendant's order for 
goods on credit, asked them for a statement and 
references to others with whom they had dealt. 
Defendants grossly misstated their assets and lia- 
bilities and gave some references. Plaintiffs con- 
sulted one of these, who gave them without com- 
ment a statement made him lately by defendants, 
similar in substance to that given to the plaintiffs. 
The active partner of plaintiffs firm swore posi- 
tively that they sought corroboration of the state- 
ment from said dealer, but sold their goods solely 
on the credit of the statement made to them. 

Held, as to plaintiffs right to rescind the sale, 
that the question whether they relied on the state- 
ment, or on their own judgment, after inquiry, was 
for the jury. 

Boyd vs. Sniffer, 27 Atlantic Reports 60. 

Where an insolvent purchaser of goods makes 
representation as to his financial condition, which 
he knows do not represent the true condition of 
his affairs by which a seller is induced to part with 
his goods on credit on the faith of such statements, 
the transaction is fraudulent, and the seller may, 
upon discovering the fraud, rescind the sale and 
reclaim the goods. 



124 CREDITS, COLLECTIONS MANAGEMENT 

Work et al vs. Jacobs et al, Sup. Ct. of Neb. 53 
N. W. Rep. 993. See also Reed et al vs. Conduroy 
et al, Sup. Ct. of Iowa, 44 N. W. Rep., 351. Symns 
et al vs. Bemer et al, Sup. Ct. of Neb. N. W. Rep. 
648-473. Lindauer vs. Hay, 61 Iowa 665. 

Whitaker Iron Co. vs. Preston National Bank of 
Detroit, Sup. Ct. of Michigan 6-16-94; 59 N. W. 

395- 

1. Where a statement for credit, showing total 
assets about $46,000, includes a $2,000 account re- 
ceivable based on nothing but a consignment for 
sale, which, in fact, realizes $300, and a $5,000 
patent, which really cost $2,000, the court cannot 
say there is no evidence of fraud. 

2. When there is evidence of fraud in the pur- 
chase of goods, one claiming them by purchase 
from the vendee has the burden to show his own 
good faith. See Letson vs. Reed, 45 Mich. 27, 7 
N. W. Rep. 231; Berry vs. Whitney, 40 Mich. 65; 
Carrier vs. Cameron, 31 Mich. 379. 

Sec. 884, Gen. St., 1883, P- 343 Colorado, pro- 
vides. 

" If any person shall cause or procure others to 
report falsely of his honesty, wealth or mercantile 
character, and by thus imposing on any person 



PROPER USE OF STATEMENTS, ETC. 1 25 

or persons, obtain credit and thereby fraudulently 
get into possession of goods, wares, merchandise 
or any valuable thing, every such offender shall 
be deemed a swindler, and on conviction shall be 
sentenced to return the property so fraudulently 
obtained, if it can be done, and shall be fined not 
exceeding $1,000 and imprisoned in the county jail 
not exceeding six months." 

The case of Schayer vs. People, Court of Appeals, 
Colo., 6-1 1-94, 37 Pacific Rep. 43, is one of interest, 
and while there was failure to convict, it was be- 
cause of failure to prove the allegations in indict- 
ment. In the indictment it was charged that " Is- 
mar Schayer, devising and intending to cause and 
procure the mercantile agency of R. G. Dun & 
Co., to report falsely his wealth and mercantile 
character to Bochfinger & Co." It was shown that 
Shayer did not know B. & Co., so that the state- 
ment could not have been made with any intent 
of defrauding them. But the court says : " To 
constitute the offence defined by the statute it is 
not necessary that an intention to defraud any 
particular person or persons should exist." 

Donoho vs. State, Supreme Court of Arkansas, 
2J S. W. Rept., 226 holds, 



126 CREDITS, COLLECTIONS MANAGEMENT 

1. To render a person guilty of obtaining goods 
under false pretences, his false representations need 
not have been the only moving cause that induced 
the other to part with the goods. 

2. The fact that one from whom goods were 
obtained by false representations, recovers them 
does not affect the guilt of the person so obtaining 
them. 

Hathcock vs. State, n -23-91, Supreme Court 
of Georgia, 13 S. E. Rep. 959. 

While this case is not one directly in point, we 
have a statement of value in the syllabus as follows : 
" Representations by a party applying for credit 
that he was perfectly solvent and responsible for 
his debts, and was good for his obligations, are 
representations of his respectability and wealth, 
and, if false, are within section 4587 of the code, 
which declares that " if any person, by false rep- 
resentation of his own respectability, wealth or 
mercantile correspondence and connections, shall 
obtain a credit and thereby defraud any person or 
persons of any money, goods, chattels or other 
valuable thing * * * * such person so of- 
fending shall be deemed a cheat and a swindler. 

People vs. Wakely; 62 Mich. 297, holds: 



PROPER USE OF STATEMENTS ETC. 127 

i. " The object of the statute against obtaining 
goods under false pretences is to punish cheats, and 
it must be made to appear not only that some 
person has been defrauded, but that the person 
making the representations intended to defraud the 
person by the representations made. 

2. " False representations made to an agent, if 
he has authority to sell the articles obtained by 
such false pretence, will be sufficient to maintain 
an information, although the principal did not act 
upon the representations made, otherwise than 
through the agent." 

Here is a good definition of a false pretence: 

" It consists of a statement of some pretended 
existing fact, made for the purpose of inducing 
the owner to part with his goods. No statement 
of anything to take place in the future is a pretence 
within the meaning of the code." 

Blum vs. State, 20 Tex. App. 578; 54 Am. Rep. 
530. 

" To convict it must be shown that the prisoner 
knew the representation to be false/' 

Sharp vs. State, 53 N. J. L. 511. 

" An instruction that, if certain representations 
were made by the accused, and were known by 



128 CREDITS, COLLECTIONS MANAGEMENT 

him to be false, and by means thereof he obtained 
the property, he is guilty, is error, when there is 
no evidence that the person defrauded was induced 
to part with his property by such representations." 

State vs. Stout, 75 Iowa 215. 

The case of Starr et al vs. Stevenson et al, Su- 
preme Court of Iowa, Oct. 8, 1894, 60 Northwest 
Reporter 217, is not exactly a case along the line 
of false statements, but in the opinion there are 
some statements made that are of value to us, in 
showing our rights. The case is a very interesting 
one, and should be read by all, the opinion being 
more complete and full than in many cases. We 
will quote from different sections without entering 
into the case in detail. 

" It is the preconceived design of the buyer. 
formed at or before the purchase, not to pay for 
the thing bought, that constitutes the fraudulent 
concealment, which renders the sale voidable, and 
not an intent formed after the purchase. 

" If he at the time of making the contract intends 
never to pay for the goods, the whole transaction 
is fictitious. There is no meeting of the minds, no 
contract. 

" Fraud never consists in intention, unless it be 
accompanied by some act" 



PROPER USE OF STATEMENTS, ETC. 1 29 

Burrill vs. Stevens, 73 Me. 395; 40 Am. Rep. 
366-368, holds: 

" One who, in settlement of an antecedent debt, 
takes goods from a person who has obtained them 
by fraud, is not a purchaser for value." 

We are occasionally misled by reports from 
banks or others who prove to be interested in the 
debtor, and we are sorry to report that there have 
been brought to light some instances, where banks 
or others reported falsely or concealed important 
information they might have given. We are not 
yet quite clear regarding our rights and our reme- 
dies, but will call attention to the latest decision 
noted. 

For full opinion our readers are referred to 
Northwestern Reporter of Feb. 16, 1895, page 942. 
Sylvester et al vs. Henrich et al; Supreme Court 
of Iowa, Jan. 25, 1895. 

" In an action at law for damages for false rep- 
resentations as to the credit of a person, plaintiff 
must show both an intent on the part of defendant 
to deceive and a knowledge on his part of the 
falsity of the statement." 

In the opinion we read: 

" Ever since the case of Pasley vs. Freeman, 3 



130 CREDITS, COLLECTIONS MANAGEMtNT 

Term R. 51; decided in 1789, it has been held that 
an action lies for a false recommendation as to 
the credit of one person, by which another sustains 
damages, if such recommendation be made with 
intent to deceive and defraud such other; and the 
false representation may consist in the suppression 
of the truth, as well as in the assertion of a false- 
hood, and the action lies in either case if the intent 
to deceive exists, and is the cause of the suppres- 
sion of the truth or the assertion of falsehood." 
Upton vs. Vail, 6 Johns 181 ; Allen vs. Addington, 
7 Wend. 9; Addington vs. Allen, Wend. 374. To 
maintain an action for such deceit, the plaintiff 
must prove actual fraud, or an intention to defraud 
him by false representations. Deceit is the gist 
of the action, and though the advice given be rash 
and indiscreet, yet, if there is no ground to infer 
an intent to deceive, it will not support the action." 

Avery vs. Chapman, 62 Iowa 145; 17 N. W. Rep. 
454; Young vs. Corell, 8 Johns 24; Upton vs. Vail, 
supra; Holmes vs. Clark, 10 Iowa 423; McKoun 
vs. Furgason, 47 Iowa 636; Marsh vs. Falker, 40 
N. Y. 562. 

The recent case of Wachsmuth et al vs. Martini, 
Supreme Court, 111. 39 N. E. Rep. 129, touches 



PROPER USE OF STATEMENTS, ETC. 131 

an entire different phase of the question, and goes 
to show the importance of agencies copying cor- 
rectly statements received, and showing in state- 
ments sent out whether they are copies of state- 
ments received from or made by the merchant, or 
are statements compiled by the agency from facts 
ascertained from other sources. The opinion holds 
that, although the statement made by Martini was 
false, yet as the Agency sent out a statement ma- 
terially different, which was relied upon as a basis 
for credit, an action for fraud and deceit could not 
be maintained. The opinion in full is as follows: 

" Appellants were wholesale dealers in clothing 
at Chicago, and appellee was a retail dealer in 
clothing at Minonk, in Woodford county. Ap- 
pellee ordered a bill of goods amounting to $2,805 
from appellants through a traveling salesman of 
theirs, and they thereupon applied to the Merchants 
Statement Company at Chicago for a statement 
in regard to the commercial standing of appellee. 
The company then addressed a letter to Martini, 
requesting a statement of his financial affairs, and 
inclosed with the letter a blank to be filled out by 
him. On receipt of the letter, Martini turned it 
over to liis confidential clerk and bookkeeper, one 



132 CREDITS, COLLECTIONS — MANAGEMENT 

Peter Wiltz, with instructions to fill out the blank 
so as to show the condition of his assets and lia- 
bilities. After some discussion and directions, 
Wiltz filled certain of the blanks in the statement, 
signed Martini's name to it, and mailed it to the 
Mercantile Statement Company. This statement 
is composed of various items, showing — 

Assets $11,330.24 

Liabilities 3,100.00 

Immediately upon receipt of this statement, the 
Mercantile Company delivered to appellants the 
following report (itemized): 

Total assets $13,630.00 

Liabilities 3,100.00 

Surplus assets $10,530.00 

Upon the receipt of this report from the Mer- 
cantile Statement Company, appellants accepted 
the order that had been forwarded by their travel- 
ing salesman, and shipped the goods in various 
lots to Martini. Thomas Davies testified at the 
trial in behalf of appellants that he was manager 
for L. C. Wachsmuth & Co., and had particular 
charge of the credits, and that on the strength of 
the information contained in the statement or com- 



PROPER USE OF STATEMENTS, ETC. I 33 

munication received from the Mercantile Statement 
Company he passed upon the credit and ordered 
the goods shipped. A few days after the arrival 
of the last of the goods at Minonk, Martini sold 
his entire stock of goods at that place to Wiltz, 
and Goodwin, clerks in the store there located, for 
$6,019 — one-half in cash and one-half in notes se- 
cured by real estate — and two or three days after 
that sale a judgment by confession was entered 
against him in the circuit court of De Witt county 
for $3,725.69 on a note bearing date more than 
eight months prior thereto, but which had not 
been reported in the statement returned to the 
mercantile agency; and, upon an execution issued 
on that judgment, the entire stock of goods in a 
store belonging to Martini and located at Farmer 
City, in said De Witt county, was sold, and there- 
upon appellants brought this action on the case 
for fraud and deceit. 

In order to maintain an action for fraud and 
deceit, it must appear that either the defendant 
himself, or his servant or agent, made the alleged 
fraudulent statement or representations. And in 
Merwin v. Arbuckle, 81 111. 501, this court held 
that, before there can be recovery in such suit, 



134 CRKDITS, COLLtCTIONS MANAGEMENT 

the statement must be untrue, the party making 
it must know that it is false, and the party seeking 
to recover must have relied on the statement as 
true, and have been induced to act on the state- 
ment. In the case now before us, the defendant 
made no statement to appellants, but he or his 
clerk made a statement in writing to the mercantile 
agency. We will assume that a person furnishing 
information to such an agency does so for the 
purpose of enabling the agency to communicate 
such information to persons who may be inter- 
ested in obtaining it for their guidance in giving 
credit, and that, therefore, the liability to any per- 
sons defrauded should be the same as if the repre- 
sentations had been made directly to such persons. 
Eaton, Cole & Burnham Co. v. Avery, 83 N. Y. 
31; Hinchman v. Weeks, 85 Mich. 535; 48 N. W. 
790. But here the statement that the mercantile 
agency received from appellee was materially dif- 
ferent from that which the agency submitted to 
appellants. The latter's report showed $1,800 more 
of real estate and $300 more of ' other assets, not 
real/ than appeared upon the statement furnished 
by Wiltz; and hereby the rating of the assets of 
Martini was increased $2,100 over and above 



PROPER USE OF STATEMENTS, ETC. 135 

what it had been represented to be to the Mercan- 
tile Statement Company. Which of these two 
statements induced appellants to give credit to ap- 
pellee and ship the goods to him? Davies, their 
" credit man," testifies positively that the informa- 
tion contained in the communication received from 
the mercantile agency induced him to give the 
credit and order the goods shipped. It was not 
the written statement made by appellee or his agent, 
or either a true or substantial copy of it, that ap- 
pellants relied on, or that induced them to act as 
they did. Some of the items in the two state- 
ments are identical; others are very different. The 
two statements — each regarded as a whole — are 
not substantially alike. The statements upon which 
appellants relied and based their credit made a 
better financial show^g for appellee by $2,100, 
than the statement for which he was legally re- 
sponsible. It would be mere surmise to conclude 
that/ even if the report to appellants from the 
mercantile agency corresponded with the statement 
from Minonk, they, nevertheless, would have filled 
the order for the goods. A cause of action cannot 
be constructed upon so uncertain a foundation as 
a mere conjecture. The Mercantile Statement 



136 CREDITS, COLLECTIONS MANAGEMENT 

Company was the agent of appellants, and not the 
agent of appellee; and the supposed cause of action, 
being based on a statement made by such agent 
and not upon a statement made by appellee, or 
for which he was responsible, had no legs upon 
which to stand, and necessarily failed. The judg- 
ments of the Circuit and Appellate courts could 
not have been otherwise than they were; and it 
is wholly immaterial to inquire whether or not 
the trial court erred in any of its rulings upon the 
instructions or otherwise at the trial; for, even if 
we assume that errors were committed, they worked 
no injury. The judgment of the Appellate court 
is confirmed." 

We submit these various decisions, without com- 
ment; we did not make our search with any desire 
to find decisions favorable to our preconceived 
opinions or desires, but simply with a purpose to 
know for ourselves just what rights we have. 

Many chapters could be written to great ad- 
vantage upon such topics of almost universal inter- 
est, and all who will take the time to investigate 
will acknowledge the great help they have received, 
for much more value comes from having wrought 
out than to have only read what others write. 



CHAPTER IX 



Determining: Lines of Credit — Credit Records 

We sometimes find it necessary to give a defini- 
tion of a term we think everyone understands. 
Some time ago a young merchant consulted with 
a credit man, and was told if he would give them 
the bulk of his trade he could have a line of credit 
of $600. ° When making final settlement, two 
years later, he claimed an actual credit of $600 — 
for, said he, " I was to have a credit of $600, and 
you haven't given it to me yet." None of our 
readers need to be told that a line of credit is 
simply the amount we are willing to allow the 
account to reach. We sincerely hope that the an- 
nouncement of this topic has not induced any one 
to imagine that the writer was sufficiently auda- 
cious to attempt to promulgate many definite rules 
for determining lines of credit. It will be our 
endeavor, however, to offer some suggestions which 
it is hoped will be of assistance to all in this very 
difficult part of our work. 



I38 CREDITS, COLLECTIONS MANAGEMENT 

We believe it is absolutely necessary to have 
the information which we have previously sug- 
gested, and especially a definite statement of re- 
sources and liabilities properly classified, before 
we can determine intelligently upon a line of credit. 

It is not sufficient to know a man is worth 
$10,000, for it makes a great difference as to how 
his assets and liabilities are distributed, and what 
proportion the available assets bear to the matured 
and maturing obligations. 

The number of creditors in the different lines 
affects very materially our decision, and we need 
have no fear we have been too painstaking in 
gathering information. 

We are sometimes shocked by expressions of 
those credit men who contend against what they 
term fine spun theories, but who, after all, in the 
same breath, acknowledge their dependence upon 
mercantile exchanges, agencies, banks and sales- 
men, thus showing their own basis for theorizing. 

The fact is, we believe there is not a credit man- 
ager in the country who does not theorize, for it 
is simply a generalization under various aspects, 
and signifies that a certain class of facts have been 
generalized and brought into a single comprehens- 



DETERMINING LINES OF CREDIT, ETC. 139 

ive statement, so we assert that a " line of credit ' 
is not intelligently decided except theoretically, as 
defined above. 

The one great obstacle is the lack of ability to 
put true theories into practical operation. When 
we attempt to analyze our reports to determine 
upon a " line of credit," we find it difficult, yes, 
impossible to ascertain just the amount of energy 
and capital that would overcome unfavorable loca- 
tion and extraordinary competition, or how far 
ability, character and habits with little capital will 
be overbalanced by unfavorable crop prospects, 
following an over-purchase, and so we might enu- 
merate important characteristics affecting the credit 
that we cannot estimate in dollars. 

If our salaries depended only upon the per cent, 
our losses bear to the total sales, it would be a 
comparatively easy matter to take only absolutely 
safe appearing risks, but the necessity of making 
sales, and the per cent, of profit in the sale must 
be in view. 

While we maintain that no set rules can be out- 
lined by which numerous elements of safety may 
be exactly balanced by those of an unsafe nature, 
we still support the statement made in the opening 
chapter. 



14-0 CREDITS, COLLECTIONS MANAGEMENT 

" When credit men give up the idea that granting 
credit is chiefly a lottery in which it is luck by 
which they win or lose, the earlier will we have 
efforts to reduce credit work to a science." 

When we use the word science in our discus- 
sions, we hope to use it in that true sense of " pene- 
trating and comprehensive information or skill. 
System as opposed to random arrangement and 
verification as opposed to looseness of assumption." 
It will usually be impossible to state in exact words 
just why a certain line of credit was determined 
upon, and still there has been such skill, such sys- 
tem and such careful verification that the conclu- 
sions some reach are much more accurate than 
the work of those who have decided at random or 
those who have not so carefully prepared for their 
work. 

There is no question but that education, " natural 
aptitude and experience are required," just as a 
man of large experience in credits has said, but it 
is just these requisites that gradually bring about 
the skill to which we have heretofore referred. 

There is probably more careful study upon this 
topic than ever before, and yet it is a fact we have 
few clearly defined systems. 



DETERMINING LINES OF CREDIT, ETC. 14I 

It may be set down as almost an axiom that 
the insolvent will take the full benefit of his ex- 
emptions when it comes to the final settlement. 
But, nevertheless, the exemptions are worthy con- 
siderations, for if a merchant feels he has a good 
chance to win success, he will often use his exemp- 
tions as security to tide him over. 

If we always confined our lines of credit within 
such limits as appeared absolutely safe, we would 
find our sales and profits much less than at present. 

In discussing losses which occur, we do not often 
hear much of that relation which the credit man 
sustains to his house in the almost absolute neces- 
sity of his taking some risks which carry him be- 
yond his prudence. 

The large profit offered in some sales, the fact 
of the order including some goods not very sala- 
ble, the remembrance of other risks more dan- 
gerous, which have been taken and resulted satis- 
factorily, all of these and more must have their 
weight. Let us be honest and broad in our dis- 
cussions, even if we do have to acknowledge that 
we are too prone to lay aside our true office and 
assume the role of speculator. Let the credit man 
of experience stop right here and recall the orders 



I42 CREDITS, COLLECTIONS MANAGEMENT 

which he has " turned down " during the past few 
years, but these same parties continue in business, 
having bought and paid for many profitable in- 
voices since being refused, and he may conclude 
after all that his judgment was wrong. But still 
it may yet prove that his judgment was correct, 
for some accounts are unprofitable because of slow 
payments or other causes than failure. We some- 
times turn down an account that is slow because 
we believe it unsafe, and sometimes because we 
believe it unprofitable, and, as a rule, the slow 
account is unprofitable. 

It is not always proof of poor judgment in re- 
fusing credit, even when the party continues in 
business many years after. 

Neither is the credit man surely in error, if at 
times he allows himself to grant credit for the 
reasons just cited. 

We expect in the treatment of this topic to ex- 
press views contrary to many. " Is uniformity of 
opinion desirable? No more than of face or stat- 
ure," says Thomas Jefferson. 

In conversation and correspondence with many 
we find more divergence in judgments upon this 
question of " lines of credit " than upon any other. 



DETERMINING LINES OF CREDIT, ETC. 143 

Some even ask — Why set a limit? We reply, the 
one whose decision is final cannot always be at 
his desk and needs to leave a record that his 
assistant may turn to, and if account is not in 
excess of limit named, may be at liberty to O. K. 
orders received, while he is absent from his desk, 
retaining list for inspection. It is important also 
to have a permanent record, and there are many 
other good reasons. Whatever method is adopted, 
the limit placed should be such amount as we 
would be willing the account should reach, without 
again taking the matter under advisement; but 
that amount should never be exceeded without 
reconsidering the entire information at hand. By 
this last sentence it will be seen that we advocate a 
limit not so fixed that reasonable and later evi- 
dence or conditions may not be used to modify it. 

It appears to be the best plan to first place a 
tentative limit until all necessary information pos- 
sible to obtain can be gathered and collated. 

Where a salesman is covering a territory regu- 
larly, the first decision is often made before the 
first order is received. That decision indicates that 
without much expense or detail, it has been de- 
termined that an order up to a certain amount 



144 CREDITS, COLLECTIONS MANAGEMENT 

would be filled promptly, and the salesman is ad- 
vised to endeavor to obtain the trade. 

Of course, it is expected that the first order 
will be followed by others, and careful investiga- 
tion is instituted to determine upon a line of credit. 

We think no one will deny that, with few ex- 
ceptions, our lines of credit are altogether too 
liberal. 

We may sometimes fix a limit we think would be 
safe, but have failed to consider the number and 
size of accounts in our line the same firm may 
have with competing houses; this is one of the 
very important factors in placing our limit. Pres- 
ent reports may show good conditions if totals 
are considered without the number of creditors 
being known. We would often be willing to name 
a limit of $1,000 if ours is to be the main account 
in our line, when we would not be willing to grant 
a $300 limit if same amount is owing three differ- 
ent houses in the same line, for should local causes 
seriously affect collections and the debtor find it 
impossible to promptly meet his maturing obliga- 
tions, each creditor knowing of the indebtedness 
to the other would become nervous and crowd 
collections, and perhaps cause a failure. While if 



DETERMINING LINES OF CREDIT, ETC. 145 

there is one main creditor to satisfy, the debtor 
will be more frank with him, and the creditor is 
in a better position to give good advice, and it 
may be necessary for him to hold out the helping 
hand. 

It is certainly timely to suggest that the retail 
merchants should be given to understand that their 
creditors are their best friends, and while it is our 
duty to make our collections as promptly as pos- 
sible, the debtor, after all, should appreciate the 
obligation he is under, to advise with his main 
creditors if he is pressed and in danger. 

The past years record many failures by reason 
of what we term " scares " and " loss of grip," 
which, in many cases, have caused merchants to 
execute chattel mortgages, deeds of assignment, 
or to take other steps which have ruined them. 

These steps are often taken because of a mis- 
apprehension of the attitude their creditors would 
assume if consulted. 

Mutual confidence, it appears, then must be one 
of the important factors in consideration of lines 
of credit, and especially where the line of credit 
is large, because of having the largest account in 
any particular line of trade. 



I46 CREDITS, COLLECTIONS MANAGEMENT 

It seems that merchants, large and small, must 
take risks; at least, we believe, all do take such 
risks as oftentimes place themselves in a position 
where liquidation would not be possible on short 
notice. As credit in the first place is based on 
confidence, so fair treatment in time of trouble or 
danger must be based on confidence. 

In this book we have not said much about hon- 
esty as a means of determining a line of credit; we 
have mentioned the importance of the honest and 
honorable element in the ideal credit-man, but just 
how to ascertain the honesty of the individual 
whom we are trusting, is one of the many, many 
things of which the writer will confess a good 
measure of ignorance. 

For we must ask these credit-men, who think 
the honest man is always entitled to credit, to turn 
over their credit records, look through all their 
reports, and find one in fifty, aye, one in many 
more than that, which ever reports a man other- 
wise than of good character and habits. Oh, no! 
such is the charity of our nature, we do not like 
to say a man is not honest or of good character 
and habits. A visit to a town a short time ago, 
discovered a merchant who had drank, and gam- 



DETERMINING LINES OF CREDIT, ETC. 147 

bled away his capital and $6,000 of other people's 
capital, and turning to our reports, we read, " good 
character, habits, and business ability," the banks 
say so, so do attorneys, agencies, all. O! the 
charity of the human race, surely in this case it 
covered a multitude of sins. 

We will agree to this proposition, that where 
well authenticated reports show dishonesty, we 
will grant no credit, but this ought not to be de- 
cided upon without careful investigation. 

A dishonest failure ought forever to make one 
unworthy of credit, but let us not be too hasty in 
imputing dishonesty to so large a proportion of 
failures. We read some time ago of a credit-man 
who said in effect, that if only honest men were 
given credit, there would be very few losses. We 
do not value honesty less when we say that an 
honest merchant is not always a successful one; an 
honest man may be careless in his credits, may be 
extravagant; in other words, honesty does not sup- 
ply ability or many other elements of success. 

But as a clear and settled principle let us de- 
cide not to grant a line of credit to one whom we 
are reasonably sure is dishonest. 

It is frequently the case in the West for one to 



148 CREDITS, COLLECTIONS MANAGEMENT 

be able to show a comfortable net worth of a few 
thousand dollars, and still be so far behind in his 
payments that he is obliged to give his heaviest 
creditor a mortgage on his stock. We have some 
of these cases running for years, and astonishing 
as it may seem, they are able to obtain unreason- 
able lines of credit from some. It ought to be a 
settled principle that one who has a chattel mort- 
gage for any amount on his stock of merchandise 
is not entitled to any line of credit. 

Another applicant who should have no line of 
credit is, the one who does not carry sufficient in- 
surance, unless he can clearly show that his re- 
sources are ample to promptly meet all liabilities 
regardless of loss by fire. 

The next to whom we would refuse a line of 
credit, is the one who trades with one house liber- 
ally until he becomes delinquent, then transfers his 
trade to another, and thus continuing around the 
circle 

But we suppose each has his own prohibited list- 
Some will not seriously consider an application 
from one of intemperate or sporting proclivities; 
others do as one very entertaining writer, Mr. H. 
E. Bienfang, of Cincinnati, intimates, viz: adopts 



DETERMINING LINES OF CREDIT, ETC. 149 

" the fallacy of temporizing with the vicious ele- 
ment of our present system." There is not a credit 
made that does not contain an element of a doubt 
or a hazard, and our study is to itemize, classify, 
and place values upon these myriad elements. For 
instance, putting aside prejudices, is it not a fact 
that we all have on our books some who may be 
occasionally intemperate or " sporty," but still has 
a good manager or sufficient capital or other fa- 
vorable elements to partially overcome these, so 
that he continues to be first-class pay? But event- 
ually — well, we know the end — but we expect to 
" let go " in time. 

No two lines of trade represent the same liqui- 
dating values, and a credit-man who passes upon 
accounts in several lines of trade must bear this in 
mind. We find only one statement of liquidating 
values, and quote from the one compiled by Mr. 
D. T. Mallet, of New York City, as follows: 

Accounts 

Receivable, Merchandise, 
Per cent. Per cent. 

Hardware J 2 80 

Dry Goods 6j 70 

Boots and Shoes 80 65 

Furniture 70 68 

Groceries 40 95 



150 CREDITS, COLLECTIONS MANAGEMENT 

We regret the list is not more complete, and 
indulge the hope that the liquidating values of 
other lines will be collated and published at a later 
date. Our own judgment is that the list is more 
nearly correct in the East than in the West, and 
in fairly good times than under depressed condi- 
tions, but on the whole, is too high. 

In hardware, our estimate of the average liquid- 
ating values in the West for a series of years is, 
accounts receivable, 40 per cent., merchandise, 66 
and two-thirds per cent. Now if we can reach a 
correct conclusion on these points and have the 
information before us which in previous articles 
has been deemed important, it ought not be difficult 
to reach a reasonably safe decision. 

As an illustration let us take a simple state- 
ment from a hardware dealer: 

Assets. Liabilities. 

Mdse. as per inventory.$5ooo 
Notes & accounts good.. 2500 Mdse. indebt's.$25oo 

Liquidating value by D. T. Mallet's list. 

80 per cent of 5000 4000 

J2. per cent of 2500 1800 



Liquidating value of assets. 5800 
Deduct 1 1-2 times legal exemp- 



DETERMINING LINES OF CRLDIT, ETC. 151 

tion in state where $750 personal 

property is allowed 

1125 



Net $4675 can rea- 

sonably be expected to be realized. In other 
words, if these figures are correct, there ought not 
to be a loss to the creditors if this merchant was 
in debt $4675. But the change of percentage 
which we suggest would make a very material dif- 
ference, viz: 

66 2-3 per cent of $5,ooo..$3,333.33 
40 per cent of $2,500 1,000.00 



Liquidat'g value of assets.$4,333.33 
Deduct exempt's as above 1,125.00 

Net $3,208.33 can rea- 

sonably be expected to be realized for the creditors. 
We suggest deducting one and one-half times legal 
exemptions, for the usual method of appraisement 
will warrant it, and besides that, the exemptions 
always come out of the most available asset al- 
lowable. 

It has been assumed that liquidating percentages 
used would cover expenses of liquidation. 



152 CREDITS, COLLECT: ONS MANAGEMENT 

If we will apply this method, using the percent- 
ages our experience has proven nearly correct, 
we will find our lines of credit materially reduced. 

We will also find when we adopt this plan that 
we will place more importance upon detailed state- 
ments of actual conditions and will change our 
methods of work, and pay more careful attention to 
this feature. 

We say frankly and positively that we should 
start with capital as the basis always. 

Sometimes we trust an honest man without cap- 
ital, but that is speculating on his ability, environ- 
ment, etc., etc., and is not applying any logically 
deduced conclusion. 

If there is real estate, it should be considered 
at its actual value, but an item given as " equity in 
real estate " ought not to be figured upon, unless 
the value of land and amount of mortgage and 
date of maturity are known, for there are times 
when real estate proves a liability instead of an 
asset. Insurance should equal, at least, the liqui- 
dating value of merchandise reported. 

We would not, of course, advise too close an 
intimacy with the " dead line " mentioned above. 

Now it will readily be seen that if we keep clearly 



DETERMINING LINES OF CREDIT, ETC. 153 

before us the safe capital basis, the other elements 
affecting the risk will readily arrange themselves 
about this important center, and careful considera- 
tion ought to result in correct conclusions. 

In former chapters we outlined and suggested 
the main features which would have weight, and 
we will not needlessly lengthen this chapter by a 
repetition, except to name them, without com- 
ment. We name, not in the order of their im- 
portance, but simply as suggested, Capital, Age, 
Nationality, Married or Single, Methods of Cred- 
it and Collections, Past Record, Value of Stock, 
Insurance, Value of Real Estate (not exempt), 
Borrowed money, Merchandise, Indebtedness, 
Mortgages, Suits, Character, Habits, Ability, Ex- 
pense, Prospects, Experience of the Trade, Local 
Conditions, Partners, Competition, Varied Inter- 
ests, Leases, Sureties. We cannot conceive how 
any of these can do otherwise than shade the cen- 
tral feature, capital, upon one side or the other. 
One of the difficult cases we often meet is the mer- 
chant not entitled to a liberal line of credit, and 
who reaches his limit before any of his invoices 
mature. If our decision is correct regarding the 
limit, or at any rate, if we have reached a careful 



154 CREDITS, COLLECTIONS MANAGEMENT 

conclusion, we ought, at the outset or at the first 
convenient or favorable opportunity, to frankly 
state the limit which we place upon such account, 
and name substantial reasons why it is for his own 
good that account be confined to such limits. It 
is not always judicious upon opening an account 
to do this, and it is often unnecessary, and may 
prejudice our opportunities for trade, and we are 
certain that in this particular great discretion 
should be exercised in handling the account. 

It is a much easier matter to have an under- 
standing, when the merchant himself offers his 
account and asks to arrange for a line of credit. 
These cases are met very often, especially in the 
newer sections of the country, for a merchant esti- 
mating his needs for the season applies for a liberal 
credit, and he then expects to go into details re- 
garding his matters and make a definite arrange- 
ment. 

In some lines of trade there are seasons when 
much larger purchases are necessary, and where 
car load orders must be bought to obtain advan- 
tageous freight rates. 

Nearly every hardware merchant, even a small 
dealer, needs a car of wire and nails in the Spring; 



DETERMINING LINES OF CREDIT, ETC. 1 55 

the same is true regarding agricultural implements, 
and in many other seasonable lines large orders 
are received once or twice a year. 

We should fix our line of credit at the limit we 
are willing the regular account should reach, and 
if the account has nearly reached that limit, should 
consider the car load order as an additional but 
temporary line, and O. K. the order if all prospects 
were favorable, remembering that while this larger 
order added to his indebtedness, it added at the 
same time to his assets, but should carefully con- 
sider the time when invoice matures as affecting 
his ability to meet his maturing obligations. 

We take pleasure in quoting from a valuable 
contribution from F. E. Morey, Credit Manager 
of the Pairpont Mfg. Co., Chicago, as follows — 

What is the standard? What is the average, 
with general conditions ordinarily balanced? Of 
course it differs somewhat in different lines of trade, 
being effected by the average time of credit, and 
the nature of the goods, but there is an average 
standard that has been fixed upon by the great 
Credit Insurance Associations of the country, and 
the knowledge of that standard would be of great 
assistance to the beginner that I speak of, if not 



156 CREDITS, COLLECTIONS MANAGEMENT 

to many an older credit-man, whose methods have 
not been as systematic as they might be. That 
standard is as follows : The maximum line of credit 
that can be insured is equal to one-fifth of the re- 
ported capital in all cases where the customer is 
given the highest credit rating that is commensur- 
ate with his capital, by such Commercial Agencies 
as Dun, Bradstreet, Russell, etc.; where the second 
credit rating is given instead of the first, a line of 
credit can be insured only to the extent of one- 
tenth of the capital, and when the credit rating is 
lower than the first or second that could be ob- 
tained with that amount of capital, then no credit 
insurance is given whatever. 

It is well, however, to bear in mind that even 
these insurance companies change these standards 
after looking over losses, and judging of the skill 
of the Credit Manager in handling his accounts. 
The writer's starting point for some years has been 
10 per cent, of lowest capital rating, then allowing 
the various conditions to increase or decrease the 
amount. 

We believe we have a full appreciation of the 
difficulty and the increasing labor attending the 
effort to follow all the suggestions made for gath- 



DETERMINING LINES OF CREDIT, ETC. 157 

ering, collating, compiling and considering all this 
information and intelligently determining the 
proper line of credit. Regardless of all these diffi- 
culties, however, we should remember that just so 
far as our information is incomplete, inaccurate 
or misunderstood just to that very measure is our 
judgment uncertain and perilous and indicative of 
futile efforts, or possibly lack of conscientious 
service. 

It has been our aim to discuss the general prin- 
ciples which apply to all lines of credit in the various 
lines of trade, and not to analyze specific reports. 



CHAPTER X 



Filing Reports— Credit Records 

Many inquiries indicate a desire to know meth- 
ods of filing reports, and especially has there been 
manifested an interest in the subject of Credit 
Records. 

It was not our intention to touch upon this topic, 
but we are constrained to do so briefly by ex- 
pressed requests. 

One credit manager, upon being asked regard- 
ing his manner of filing reports, said he " filed 
them in the waste basket, simply keeping a record 
of the important portions in an index." 

So we have found them filed in many ways, from 
the waste basket to the elaborate cabinet costing 
$100 to $200. 

It would take many pages to describe the many 
methods, and we will spare our readers, only de- 
scribing one which seems to combine the import- 
ant features, viz: economy, permanency and utility, 
knowing the ability of our readers to adapt the 
methods to their special needs. 



FILING REPORTS — CREDIT RECORDS 159 

Take a Graves, Amberg-Sayer or perhaps the 
card index, and index all reports, giving them an 
envelope or folder number. The neatest way is 
to take a manilla folder and have reports pasted 
upon it, having lines at the head of folder, with 
headings for such notations as you wish to make. 

A quicker way, and one more generally used, is 
to take common manilla envelopes numbered on 
end and fold reports neatly and file in envelope, 
placing same in document case as elaborate or 
inexpensive as suits the taste and the bank account. 
Some stop at this, except possibly to make notation 
on index as to line of credit, or possibly penciling 
amount of line of credit at the head of ledger ac- 
count. 

We think it better, however, to go a little farther 
and have a credit record for several reasons, which 
we believe the publication of the following blank 
will more clearly explain. Carrying out the plan 
more fully, we present a page in miniature, with 
notations such as we find advisable to make. 

The record is indexed by towns. 

A convenient size is 81-2x121-2 inches, and 
the book can be on the credit manager's desk 
for ready reference. 



l6o CREDITS, COLLECTIONS MANAGEMENT 

The sheet is not given as a study of lines of 
credit so much as to show manner of using the 
credit record. 



Town, Jones. County, Smith. State, N. Y. Salesman, Rustler. 


Bank, ist Nat'l. Attorney, G. Collector. 


R'pt 
No. 


L'gr 


Names 


Business 


Ag'cy 
Rat'g 


Limit 


Date 

Last 

Report 


Pay 

Slow 
Draw 
Interest 
Disc'nt 


Memo 


57 
1027 


412 

15c 


S. S. Ace 
M. E. Daxon 


Hardware 
Hdw&Im 


VD 

H 3 ^ 

* E 
H 4 


500 
1000 


3- 24-95 
2-12-94 


964 


98 


C.H. Faber 


Hardware 


250 


1-9-95 


Fair 
Very 
Slow 




9 
23 
227 


234<- 
978 
457 


S. Mount 

Star Bicycle Co. 

N. Herman 


Gen'l St. 

Bicyles 

Grocer 


L 4 

W D 
V E 

J? 


NoCr 
Com 
C'n'tr 

100 


3-1-95 
3-30-94 




184 


1122 


Brochen Bros. 


Drugs 


NoCr 









We call attention to a few advantages, viz: 
County, State, Salesman, Bank and Attorney can 
be seen at a glance; attorney and bank have been 
selected carefully, probably contract made with at- 
torney, and no time need be lost in attending to a 
desperate claim. Ratings, important notations, all 
customers of towns together, valuable mailing list 
for catalogues of special lines, and a permanent 
record, all commend the record. When Dun's and 
Bradstreet's books are received, the ratings are 
compared, and if rating is changed, consideration 
is given it and probably new investigations insti- 
tuted. 



CHAPTER XI 



Management of Collections from the Office 

In entering upon the discussion of the many 
questions constantly arising in handling collections, 
we do so with some trepidation, feeling assured 
that we shall not be able to fully cover the field, 
for after years of experience in various lines of 
collections we have not yet reached the point where 
nearly all the conditions have been met and mas- 
tered, and believe that this is one of the problems 
that can be profitably discussed for ages yet to 
come. 

The standpoint from which we will view the gen- 
eral collection field will not, we trust, be other 
than one affording a broad, comprehensive view, 
although systems outlined will be more especially 
those adapted to general jobbing trade with a line 
of customers rated from less than $500 to $50,000, 
or such as are generally in the retail business. We 
appreciate the fact that many manufacturers sell 
only to jobbers and there is not the call for the 



1 62 CREDITS, COLLECTIONS MANAGEMENT 

same system, although we have endeavored to 
make the discussion such as will be of interest 
and profit to all who are in any manner handling 
collections. 

Careful and wide investigation discloses the fact 
that many houses have failed to settle upon any 
system regarding their collections. We maintain 
that this is a serious error, and that every house, 
from the small retailer to the heaviest jobber or 
manufacturer, should have some well defined and 
carefully operated system. It should not be so 
fixed that it is not flexible to the varied influences 
attending a particular case, nor so fixed as to re- 
sult in diverting good trade, but so adapted to the 
particular business and locality as to work out the 
best results. We are not unmindful of the im- 
portance of the Purchasing or Sales Departments 
when we assert that a careless and injudicious col- 
lector or unevenly balanced credit man defeats the 
best efforts of all the best managed departments. 
Prompt, thorough and systematic collection meth- 
ods ought to be recognized as essential to the 
management of a remunerative business. 

It is the business of the credit man to use every 
endeavor to make his customer a good business 



COLLECTIONS FROM THE OFFICE 163 

man and a prompt payer. The prompt payer is 
the most profitable customer, buys more goods, and 
very rarely fails. If your customer is prompt pay, 
his customers will be prompt, and he will continue 
for years a profitable patron. The managers of 
some houses have been known to say they pre- 
ferred the slow paying merchant, for they can carry 
him, can practically own him, and will sell him 
on much larger margins of profit. It is well for 
the commercial world there are not many such, 
and it is certain as the years go by there will be 
fewer to make this statement than ever before. 
For in the few years past the experience of these 
houses has been such as to prove that the con- 
stitutionally and perpetually slow man is overtaken 
and run down and driven from the commercial 
race by his more business-like competitors. Our 
aim, then, in discussing the question of office col- 
lections will be to show what seem to be the best 
methods of making prompt collections, and to em- 
phasize a few general principles which should gov- 
ern. As our keynote we will assume at the outset 
that it is advisable to collect as promptly as cir- 
cumstances will warrant. 

We do not wish to be misunderstood when 



164 CREDITS, COLLECTIONS MANAGEMENT 

we urge the importance of prompt collections. It 
certainly would be far from our judgment to be 
so strenuous in demanding prompt settlements as 
to bear a merchant down needlessly, but we believe 
that collections can be made so as to be beneficial 
to the merchant. We ought never to overlook 
our obligations to the business world, and among 
these obligations we count as of highest importance 
the duty of reasonable helpfulness. Many experi- 
enced and successful men appear to think it not 
their business to say a word or do an act that might 
correct another's business error and place him on 
the high road to success, but we certainly must 
have some responsibilities and duties of this nature. 

The collection and settlement of an account must 
date back to the opening of the account, and all 
the treatment of it from before the first sale is 
made influences very materially the manner and 
success of its settlement. 

The general reputation of the house as pertaining 
to its collections is a potent factor. Some houses 
are known far and wide as sharp collectors, and 
while no one believes they do not have slow ac- 
counts, the average retail dealer will be informed 
of their expectation of prompt payment. And if 



COLLECTIONS FROM THE OFFICE 165 

buying of a house known to be prompt collectors, 
will look forward with more than usual care to 
provide for payment at maturity. The salesmen 
will be asked to avoid holding out any hope of an 
extension of time, when the obligation has matured; 
in fact, it would be much better, much as advance 
datings are to be discouraged, to arrange for the 
invoice to mature at a later date and have it dis- 
tinctly understood that the house will expect pay- 
ment at maturity, than to give encouragement to 
requests for extensions. 

We have now passed the point of decision upon 
the line of credit, and after what seemed proper 
deliberation, have opened the account and have 
been selling our new customer, and we will assume 
account is maturing. 

Statements. — It has been found most satisfactory 
to have the ledger reviewed carefully every ten 
days at least. The bookkeeper will divide his ledger 
in order that his work may be equalized for each 
day, and will make statements of some portion of 
the ledger every day in such quantities as to enable 
him to complete the entire ledger in ten days, ready 
to commence the same routine again. Many houses 
find it best to send complete statement of transac- 



1 66 CREDITS, COLLECTIONS MANAGEMENT 

tions once a month. If accounts are not too nu- 
merous, it is best to have this done near the first 
of the month, but if the number of accounts is' 
large this can be commenced about the 15th and 
completed by the 1st, always making same cus- 
tomer statement about the same time each month. 
The attached form is quite common, but, judging 
from the forms now in use, contains some points 
of value for many. 

Some statements appear to be an apology from 
the house, for putting in an appearance, and seem 
to say: "Sorry to trouble you, sir, but the house 
has a custom of sending statements; of course, if 
you can't pay it's all right." Mr. W. S. Park of 
Louisville has well said: 

" There are statements of account and statements 
of no account. Observation of some thirty before 
us shows that only five of the number convey 
any intelligent idea of the expected result. If you 
send it ' only for comparison,' say so plainly ; but 
do not waste too much time sending statements 
for this purpose alone. If it is sent as a reminder 
that the account is due, say so, politely, yet forci- 
bly. About one-half of those before us are mere 
apologies — weak-kneed affairs, which disclose weak 
business methods. 



COLLECTIONS FROM THE OFFICE 



167 



Folio. 



Monthly Statement. 



In Account with. 



We pay no exchange or express charges on remittances. 
Legal interest will be charged on all past due accounts. 



To balance as per statement, 
To Mdse. as per invoice, 



« 

© a 

CQ o 

*" a 

5 a 

•r <u 

> u 

^ o 

« Q 

e 



As soon as possible after the first of each month we send statement of 
all bills as per our ledgers. This rule saves us labor, affords opportu- 
nity for correction of errors, if any, and, we trust, will not be consid- 
ered an untimelv demand for settlement of accounts not due. 

Please remit amount now due, , or if 

you prefer, we will make draft on you on 

Yours respectfully, 



I 68 CREDITS, COLLECTIONS MANAGEMENT 

" The manner in which the statement is inclosed 
has its effect also. A man who receives a state- 
ment seldom attaches to it the importance you do; 
therefore, you should not depreciate its value by 
making it apologetic or weak in any particular. 
This can be done in the typographical arrange- 
ment, in the wording, and by inclosing it with other 
printed matter. Advertising circulars destroy ef- 
fectually the object of a statement. If mailing ad- 
vertising matter pays, mail it by itself, but if you 
are expecting favorable results from the statement 
by combining the two, the chances are surely 
against you. One might argue that it costs two 
cents anyhow, and why not put in circulars to 
make up the ounce? They might do some good, 
but are sure death to the effectiveness of your 
statement. The policy of getting something for 
nothing, or trying to, has ruined many fair pros- 
pects in business." 

Drafts. — Many houses stumble over the question 
of drafts, but if, when the very first monthly state- 
ment is sent showing anything due, notation is 
made of intention to make draft within seven to 
ten days, it will start the account right. 

The good business man and the best trade for 



COLLECTIONS FROM THE OFFICE 169 

which we are looking will not think less of us for 
wanting our money when due. 

Many hesitate to notify a new customer of in- 
tention to make draft, and this is just where the 
error is made, for if from the beginning, unless 
prompt payments are made, you make draft, there 
will not be as much difficulty as if the account at 
first was allowed to run indefinitely, and then, when 
much is past due, you provoke your customer 
" because you have never drawn before." 

The writer remembers well one of his heaviest 
accounts, upon which he always made draft on 
10th for all due on statement of the 1st of the 
month, but the credit man of another house said: 
" I don't dare draw on him, for fear it will make 
him mad." 

The second journey through the ledgers besides 
developing recently matured accounts may show 
that the account for which statement was sent ten 
days ago is still unpaid. Possibly some contend 
there is no need of wasting postage to notify him 
of draft when made, but we believe it pays in many 
ways. He may have forgotten or overlooked the 
notice and, when the draft is presented, be taken 
a little by surprise and indignantly order draft 



170 CREDITS, COLLECTIONS MANAGEMENT 

returned. It is best to send this in the mail pre- 
ceding the draft to bank, that he may have a little 
time to look it up, prepare for it, or perchance 
remit. 

Some have tried nearly all ways and finally 
settled on this course, using the following blank : 

CREDIT DEPARTMENT. 
189 

Dear Sir: As per former notification, we have this 
day made draft through for $ 

The Bank has instructions to return if not paid prompt- 
ly. Kindly favor us by honoring- draft, and oblige. 
Yours very truly, 

But even after all this some of the drafts will 
not have attention, and few country banks will 
return a draft within ten days. An advice is sent 
with draft to bank, which requests the return after 
ten days, as will be seen by following form: 

CREDIT DEPARTMENT. 
189 



Dear Sir: Herewith draft No on 

for $ for collection. 

We make all drafts to include bank charges, and de- 
sire remittance for full amount of draft without any de- 
duction. 

Do not hold longer than ten days unless advised. 
Very respectfully, 



COLLECTIONS FROM THE OFFICE I 7 I 

Draft Tracers. — It is often found one is unable 
to pay or unwilling or, more likely, negligent, and 
within ten days the following notice is sent to the 
customer: 

CREDIT DEPARTMENT. 



Dear Sir: We made draft for $ 

Up to this date we have heard nothing from you regard- 
ing it. Will you kindly favor us by honoring draft so 
we may have returns by early mail, and oblige. 

Respectfully, 

The same day blank is prepared to send to bank, 
but not sent until the next mail. The blank is as 
follows : 

CREDIT DEPARTMENT. 

Dear Sir: Unless there is good prospect of our draft 

No on being paid 

very soon, you will please return in enclosed stamped 
envelope. Very respectfully, 

Kindly present once more before returning. 



If the draft is returned unpaid, without satis- 
factory explanation from the customer, one of two 
things ought to be done; return the draft at once 
to another, or the same bank, if no other is in the 
town and write our friend, when an account is due 
we expect payment, we notified him of draft, made 
it and he has paid no attention; we will give him 



172 CREDITS, COLLECTIONS MANAGEMENT 

another opportunity to pay draft and notify him 
where he will find it. 

It may be that such reports have been received 
that point to serious weakness of the debtor; in 
such case it would probably be advisable to make 
draft through best collection agency or through 
attorney, without first taking the time to return 
as suggested. If the draft comes back the second 
time without good and sufficient reason being 
given, there should be no delay in placing the 
account with attorney or visiting the debtor in 
person or by a good proxy. 



CHAPTER XII 



Exchange and Collection Charges 
All purchases are payable at the office of the 
vendor, and the question of exchange and collec- 
tion charges ought not to be constantly recurring, 
but it is true that none of us pass a day without 
being imposed upon or compelled to write a letter 
regarding it. It seems almost impossible to fully 
enforce this principle, which, because of its evident 
justice, ought to enforce itself. We will say noth- 
ing more and can say nothing less than that we 
ought to take this question up kindly but firmly, 
making good argument as to its justice, and by en- 
lightening our customers, induce them to conform 
to a just rule and pay their own exchange and 
collection charges, if any, because of their having 
caused this extra expense through their delin- 
quency. 

But perhaps the debtor writes for an extension, 
and it is then the credit man needs his very best 
judgment and his most careful letter writing. 



174 CREDITS, COLLECTIONS— MANAGEMENT 

Probably all will agree with the following state- 
ment: " If your customer wants any favor of you, 
he should give assurances beyond question. It 
is folly not to exact all your prudence suggests." 
It may not be possible to adopt a certain rule 
concerning extensions, for so few cases are alike, 
but there certainly ought to be a general policy 
adhered to. We still maintain our judgment that 
it is best to collect promptly as possible. But 
often the account will be collected more promptly 
if short extension is granted. We do not want to 
cause an unnecessary failure by precipitate action. 
If we sue, it will probably take longer to collect 
than if short extension had been granted. Be 
sure that reasons given for request are correct 
and that causes which have occasioned the request 
are not such as to hazard the account. If you 
have not had a recent statement of the debtor's 
financial condition, make the most of this oppor- 
tunity for the purpose of obtaining one. Take 
this opportunity of impressing upon the debtor 
that you are not in the habit of granting exten- 
sions, and while you do grant this one cheerfully, 
you trust he will make an extraordinary effort to 
meet payment within the time promised, and in 



EXCHANGE AND COLLECTION CHARGES 175 

future plan to meet his maturing obligation 
promptly. If the request for extension is for thirty 
days or more, take note for amount due. During 
this interval more may be maturing, and if exten- 
sion has been granted upon part, it ought to have 
been with the understanding that balance of ac- 
count be met at maturity. 

There is another method of office collections 
which often proves superior to statement, a form 
of letter, run off on mimeograph and completed on 
the typewriter, about as follows: 

Dear Sir: "We sent you statement under date of 

showing balance of $ past due. 

Since that date other invoices have matured, and your 

past due account amounts to $ We have need of 

large amounts by .... inst., and will very much appre- 
ciate your efforts to remit part or all of past due ac- 
count by that time. 

Thanking you in advance for your efforts to comply 
with our request, we are, etc., etc., 

Of course it is best to vary form, and will not 
do to work along this line too often, but occasion- 
ally it is very effective. 

A record of all statements sent ought to be on 
credit man's desk, showing ledger folio, name, date 
of sending, total amount owing, and amount past 
due, with notation by signs, letter or brief mention 
showing just what were the special characteristics 



176 CREDITS, COLLECTIONS MANAGEMENT 

of that particular statement. This record would 
also be used to show requests for extensions, prom- 
ises of payment and extension granted, also draft 
memoranda. By writing the names on left hand 
page only, the two pages will be used for statement 
record for two months. 

Treatment of notes may well be a matter for 
brief consideration. Some sales are made upon 
time calling for settlement by notes, or if accounts 
are extended thirty days or more beyond maturity, 
notes should be taken, in fact, settlement in some 
form should be insisted on always and an account 
or series of notes should not be allowed to run 
indefinitely. If the house makes a practice, as 
many do, of discounting all notes at foreign or 
home banks, it seems best to have notes all made 
on same forms, varied, of course, in stipulations, 
according to the laws of the States, but written on 
forms furnished by house granting extension. 

Notes of same general form are more easily 
listed; amount, time, rate, address, number, etc., 
always in same place, a glance at the note quickly 
informs one upon any desired point. Some firms 
take the precaution to send to maker about ten 
days before maturity notice as follows: 



EXCHANGE AND COLLECTION CHARGES 1 77 

CREDIT DEPARTMENT 

189 

Your note dated matures 

Please remit to early enough to protect. 

Occasionally the bank notices do not reach our cus- 
tomers in time for them to make preparation to meet 
their notes, and we take the liberty of calling your at- 
tention to your note, so that you will not be inconven- 
ienced because of any delay in the bank notice. 

Awaiting your further valued favors, we are, 
Very truly, 

If it is not known to which bank the note will 
be sent, or if you have held the note, request 
remittance to " us," in blank for that purpose, or 
if the bank is known, give name. If he does not 
protect it, the note will be presented to you. It is 
not wise, if you are discounting your customer's 
paper, to allow protest notice to go to discounting 
bank, and it certainly is best for you to have op- 
portunity to prevent this. 

When note is presented to you, and the maker 
has made no provision for its payment, or renewal, 
or extension, it is advisable to wire him about as 
follows : 

" Note one hundred and fifty dollars, due to- 
day, subject to protest, have you remitted, answer." 

This will nearly always result in reply, contain- 



178 CREDITS, COLLECTIONS MANAGEMENT 

ing statement, " Have remitted " or " will remit 
to-day or to-morrow, please protect." 

As a general rule, it is best to have note pro- 
tested, if not provided for. The maker ought to 
be given to understand the importance of prompt- 
ness, and if he pays a few dollars for this experi- 
ence, he will be more liable to be careful in future. 
He cannot find much fault; he has had two notices 
by mail and one by wire; the note is out of your 
hands. You gave him every opportunity to care 
for this; he only is at fault. If the note has been 
discounted by a foreign banker, it is best to have 
protested, but to make payment so that remittance 
of proceeds is not delayed. Notes taken from 
good business men will usually have attention, but 
many country dealers do not appreciate the im- 
portance of promptness, and think a few days or 
a week will not make any difference. 

Practically these same reasons would apply 
where note is retained in possession of the house. 
The question of where to make note payable has 
been discussed long and earnestly, and seems to 
have settled down to the plan of all houses dealing 
with the heavier trade, having notes payable in 
town, where the maker resides, but notes given 



EXCHANGE AND COLLECTION CHARGES 179 

by what we term the country merchants are made 
payable at the office of payee, except the maker 
prefer otherwise. 

A protested note ought to have prompt atten- 
tion and warrants a vigorous letter. Occasionally 
there are good reasons for protecting note, and in 
that case write the maker " your note was pre- 
sented to-day, and as we had not received your 
remittance, we placed our check in bank to cover, 
thus preventing protest fees. If you have not al- 
ready remitted, please give the matter prompt at- 
tention." 

But in spite of all our work some accounts must 
pass into collection agencies' or attorneys' hands, 
some must pass through the slow process of law 
and some (yes, too many for our comfort) will 
never be collected. In later chapters we treat of 
the routine for treatment of these claims when 
they have once passed to suspense account or 
collection register, and only stop now to say that 
the efforts should tend to keep the debtor before 
us all the time, noting his changes of location and 
his financial condition. The truly honest debtor 
ought not to be harassed beyond reason, and we 
may need some of the patience and forbearance 



ISO CREDITS. COLLECTIONS MANAGEMENT 

of the immortal Job. 

The dishonest debtor ought to be followed until 
he has passed to the " other shore," possibly to the 
point we cannot go without losing our chance of 
Heaven. 

The question of interest on past due accounts 
may well be entitled to some attention at this 
time. One credit man said, when questioned re- 
garding his methods of treating past due accounts, 
"I never charge interest on slow accounts; there 
are other ways of collecting interest than by mak- 
ing an interest charge." Thus implying that they 
tried to cover the shrinkage by additional charge 
for merchandise. 

Another house follows the other extreme; believ- 
ing that obligations should be met at maturity, 
they figure interest on every invoice from day it 
is due, also interest on credits, making a complete 
statement showing exact interest charged. 

There is some objection to this, from the fact 
of its being so exact that it has the appearance of 
no leniency whatever, and no appreciation of cus- 
tomer's trade. 

In its favor, however, it is argued, it is strictly 
business, we pay interest at bank for exact days, 



EXCHANGE AND COLLECTION CHARGES 151 

part of our loans are made so we may carry our 
customers, why should they not pay their own 
interest? Others make an average, intending to 
allow the debtor ten days to two weeks' extra time 
if needed, without interest, endeavoring to collect 
promptly, but not insistent for a few days' interest. 

As a general rule, the delinquent should pay 
for his favor. The interest charge will often hasten 
the payment, the custom will prove of benefit to 
the debtor, for he will learn to charge his delin- 
quents interest. 

The interest account will show a surprising and 
satisfactory improvement, if some general plan 
upon equitable basis is adopted in houses not 
heretofore giving this subject proper attention. 



CHAPTER XIII 



Treatment of Slow, Doubtful, or Desperate Ac- 
counts 

There are more medium-sized jobbing houses 
and manufacturing establishments in the country 
than there are large ones. Only a few houses are 
large enough to have their own law department, 
indeed many houses doing a very fair amount of 
business do not have their separate collection de- 
partment and the credit man has entire control of 
this work. 

We do not propose a tirade on country attor- 
neys, for we appreciate the fact that many good at- 
torneys are in small towns, but there is a great dif- 
ference between an attorney and a collector. It 
seems that some confound the two. No doubt 
the two are often combined in the same man. But 
most of us would rather our collections should go 
through the hands of a good collector, even if he 
does only know the general principles of law, 
than to the best legal light in the country, to 



TREATMENT OF ACCOUNTS 183 

whom collections are distasteful and beneath his 
dignity or who has not the many indispensable 
qualifications of the successful collector. Some 
attorneys^ to whom we would give our most diffi- 
cult law cases or, whose counsel we eagerly seek 
on technical questions of law, are just the ones 
to whom we would avoid sending a difficult collec- 
tion. The best collection attorneys are to be found 
pushing to the front in the use of modern means 
of reaching clients through the best mediums of 
publicity. It is the testimony of many that the 
vast majority of claims which appear almost hope- 
less, and which seem to some to compel resort 
to the courts, are after all awaiting the treatment 
of the specialist who knows how to prescribe in 
such a way as to save the claim. As stated earlier 
in this series, in collecting, much depends on the 
way the account has been handled from its com- 
mencement to date. Losses will occur. The best 
judgment and the most careful handling will not 
prevent all losses, but how to have as few as pos- 
sible and how to recover what appears to be an 
irretrievable loss are questions second only in im- 
portance to opening the account. 

One point often neglected by the collector is that 



184 CREDITS, COLLECTIONS MANAGEMENT 

he does not impress the debtor with the fact that 
he is a fellow business man, and as such is in a 
position to help him if in trouble. Certainly there 
are very few cases where it is not best to assume 
at the outset that the debtor is honest, has full 
intention to pay, your house has been so consid- 
erate and wise in the former handling of accounts, 
that before all others he will make a desperate 
effort to pay them. The best collector is the one 
who has a full sense of honor, one who will be 
shrewd and wary, but not resort to deceit or mis- 
representation. He will be honest himself, and he 
will believe in the honor of his fellows, but still he 
will be alert to note the first intimation of deceit 
by the debtor, and wise in attempting to divert 
the tide of dishonesty into a wave of dishonor. 
The mistake manv make is in forgetting the Gold- 
en Rule as it should be applied to honest men. 
This will sound strange to many, for it is evident 
that some believe that the only thing they have to 
consider is the object for which they come — to 
collect — regardless of anything else. But we main- 
tain that the simple application of this rule in deal- 
ing with honest men will result advantageously. . 
It may said that there are no two cases alike, 



TREATMENT OF ACCOUNTS 185 

and that no rule can be laid down for the hand- 
ling of collections; but with observance of a few 
general suggestions, we believe the matter of col- 
lections can be made much more easy and success- 
ful. Let us first turn our attention to what appears 
to be a bad claim. We have used our best judg- 
ment, but our information may have been incor- 
rect, and the customer is in bad shape, his account 
is all past due, drafts have been returned. It is 
not best to wait long with a large past due ac- 
count, for there are two things we should be 
anxious to do. First, always, we should try and 
prevent a failure by good, sound advice and a 
helping hand. Second, if conditions seem to be 
such as to warrant (and they almost always do 
warrant it if the account is long past due) we 
should seek good security. 

It the credit-man or house collector is going to 
see an old customer, now delinquent, it will likely 
not be unwise to wire him a few hours ahead, stat- 
ing: " Our Mr. will call to-day, raise all funds 

possible." Some will say this is unwise, but a judi- 
cious use of this plan has been found successful. 
By this means your debtor has had opportunity to 
attempt to raise funds, to consider your account, 



l86 CREDITS, COLLECTIONS MANAGEMENT 

and one who has tried it often has never yet found 
that the debtor would hurry to transfer property, 
assign, mortgage, or take any advantage of this 
information. But one needs to be pretty sure of 
his man, and have a personal acquaintance on 
which to base this action. Sometimes if one is 
known to be in trouble, it is well to wire that you 
are " coming to help him." All this is applicable 
to the attorney's visit, too, for he represents the 
" house." Once there, go immediately to the busi- 
ness you have in hand. You do not come to talk 
about the weather; you came to sit down with 
him and talk about matters of importance. Do not 
mince matters; be in earnest, but do not be impe- 
rious — this is the rock upon which many a col- 
lector is wrecked. He may carry the idea that he 
is a big man, and carries the force of a large con- 
cern, and be so far from the debtor that he can't 
reach him. Do not " palaver over him," just be a 
fellow-being. 

Before knowing what you are to do or the way 
in which you want to attempt to do it, find out 
what shape his matters are in. In this very point 
many are weak. The good collector will learn 
to adapt himself to the nature and circumstances 



TREATMENT OF ACCOUNTS 187 

of the man with whom he is dealing, and associate 
himself with ease with the person from whom he 
is trying to collect. Don't take general statements, 
but seize the first intimation that figures given you 
are from memory, and get the books and talk 
from them. The more expert a man is in all forms 
of bookkeeping, the better collector he is likely 
to be. If the preliminary handling of the account 
has been judicious, you have surely not neglected 
to get a signed statement from him, for the benefit 
of its considerate use is unquestioned. After you 
have found just how matters stand, then careful 
decision must be reached — and (now you have ex- 
pected this all the time) it may be found neces- 
sary to say, you are there for cash or for security, 
and are not to be put off even for a week. Re- 
member that there are times when cash is -.lmost 
absolutely impossible to get, and do not precipi- 
tate a failure as so many are doing every day by 
saying " cash or trouble," and thus crowd your 
customer down by unreasonable demands. In a 
majority of cases your debtor will be as reason- 
able as you are. He wants to live and he thinks 
he can pull through. 

Try other remedies before the chattel mortgage 



I 88 CREDITS, COLLECTIONS MANAGEMENT 

is resorted to. A good guarantor is next to cash. 
Good collateral notes and good accounts — (value 
of notes and accounts verified at bank or other- 
wise, and taken as security, two for one,) are be- 
lieved by many in ordinary years to be the best 
kind of security, in agricultural districts espe- 
cially. 

What about real estate? Well, take it, if the 
claim is desperate, and the reasonable value is half 
more than your claim, if you decide it is the best 
you can do. Real estate is a very fickle and very 
tedious kind of security in many cases. Town 
property must be known to be revenue yielding 
or taxes and special assessments, etc., may make 
it a burden. Farm property is best of all, but 
should be carefully investigated as to location and 
value. County records should be reviewed before 
feeling satisfied you have clear title, in fact, records 
should be examined at every county seat when 
looking up a claim, for chattel and real estate 
mortgages have been found of record without hav- 
ing been noted by commercial agencies or reported 
to you by debtor. 

If the collector has spent much time with the 
debtor, he has noted his weak points, has seen 



TREATMENT OF ACCOUNTS I09 

just what dangers he needs to be guarded against, 
and ought to give him the benefit of his advice. 
Advice is one of those commodities so common 
that a great deal of it is unused, but those com- 
petent to give it ought not to refrain. Among 
the many points of advice it has been found best 
to give we might enumerate: Recommend neat- 
ness in store and better care of stock, more careful 
pruning of expenses, less indiscriminate credit 
business, buy of fewer houses, remembering that 
when impossible to meet payments, a few large 
creditors can be treated with much more safely 
than many small ones, more stringent collection 
methods, concentration of interests, etc. 

But we may find our debtor has sold or has 
traded stock for land, and had it deeded to an- 
other, having no intention to pay. It may take 
the utmost patience, or all the arts of persuasion 
imaginable, to secure this. If one is fully decided 
that the debtor can pay or secure if he wants to, 
nothing should be left undone, even to criminal 
proceedings. If a man is a criminal, he ought to 
be treated as such, but let us be sure we have 
facts enough to warrant reasonable hopes of con- 
viction. Too often we fail to avail ourselves of 



190 CREDITS, COLLECTIONS MANAGEMENT 

the criminal remedies. It is to be hoped that some 
day we may join hands and make examples of a 
few criminals, and thus put something of a quietus 
on frauds now so prevalent. It is expensive, but 
it would be profitable to have a fund to which 
many contribute that one house might not stand 
all the expense, for a few convictions would have 
a salutary effect. 

When ought we to compromise? Do not share 
the belief of some that a compromise is never ad- 
visable. It may be if a man has been overtaken 
by misfortune, sickness or death has impaired 
capital, if fire or tornado has swept away his prop- 
erty, or even if you feel that past experience and 
losses have taught their lessons and can see oppor- 
tunity for his recovery and success. If he is there- 
by to be again " put on his feet," it might be well 
to compromise. But of all things the being so 
anxious to make collections that you grant com- 
promises unwarranted by facts is the most to be 
deprecated. Instances are known where within 
twelve hours after a party sold out, his attorney 
had compromised with four-fifths of his creditors 
at 70 per cent., and by wire at that. When a col- 
lector reached the place he found all this con- 



TREATMENT OF ACCOUNTS 191 

fronting him. Though he had a false signed state- 
ment, his claim was too small to fight alone, but 
had he been able to communicate with the other 
creditors, better terms could have been made for all. 
Remember that when a debtor is anxious to com- 
promise, he has some good reason for it, and it is 
best to take time to Investigate. A compromise 
deal should be a very slow one. If compromise 
offer is from the debtor, be more cautious than 
otherwise. 

Whether or not it is just the right position to 
take we will not now discuss, but the almost uni- 
versal concession is that the diligent creditor de- 
serves any securities his alertness and skill obtain, 
and we are sometimes vexed to find one with 
not security enough for all insisting that all share 
alike. Perhaps it is the proper stand to take, but — 
well, when we find his scruples cannot be over- 
come, and it is best to have settlement and secure 
all, a joint mortgage can sometimes be given that 
in some States will hold and in some combinations 
will not be rejected by any creditor. Perhaps a 
receiver or trustee had best be appointed. Possibly 
some one can be found to buy the stock and pay 
the accounts, or a general assignment of book 



192 CREDITS, COLLECTIONS — MANAGEMENT 

accounts and notes may be sufficient. The assign- 
ment of book accounts and notes as collateral 
should be accompanied with a contract that ex- 
pense of collection and remittance should be borne 
by the debtor. Even if your account is secured, 
other creditors, such as you may choose to fa- 
vor, will appreciate your advising them of condi- 
tions. 

Local crop failures or some disaster may cause 
one who is solvent to fall behind in payments and 
be in danger by reason of being crowded. If the 
representative of a house finds that all that is 
needed is an extension of time, and sets about se- 
curing an extension for the debtor, he is much 
more apt to meet with success than if the debtor 
had made the application, especially if he investi- 
gates carefully and makes a full and honest report. 

A voluntary assignment is certainly a condition 
we all dislike to find, and in a great many cases it 
is entirely uncalled for. In a large number of 
cases the debtor is frightened into an assignment 
because he did not know his legal rights. It may 
well be a question as to how far we should endea- 
vor to educate our customers. If his fear of an 
attachment has been removed by an understanding 



TREATMENT OF ACCOUNTS 193 

of our fear to make one, then we have placed our- 
selves in a position to prevent securing our ac- 
count. If he understands the delays attending 
suit and judgment, he may conclude to let us sue 
and arrange to dispose of his stock. But, on the 
other hand, if he does not know of these, then he 
may become frightened and make an assignment, 
wholly unnecessary, and place himself where it is 
almost impossible to relieve him. Those having 
undertaken to obtain the creditor's release and 
place the business in its former ownership will 
testify to the attending difficulties. A business 
closed, but with the expense allowed under assign- 
ments, will shrink to an alarming account. If 
agreement can be reached among the larger cred- 
itors for extension of time, appointing one mutu- 
ally agreeable as trustee, allowing the debtor to try 
to work out from under his load, a much more sat- 
isfactory result will be reached. Often it will be 
seen that the business will not pay over 50 per 
cent, under assignee, and the largest creditor will 
find it profitable to advance the funds for a com- 
promise, readily accepted if conditions warrant. 
and by placing the debtor in charge, those advanc- 
ing funds can be paid in full. 



194 CREDITS, COLLECTIONS MANAGEMENT 

Under most of our State laws the creditor is 
entitled to judgment for any deficit. Some firms 
adopt the custom of putting everything into judg- 
ment, no matter how hopeless it may seem. It 
certainly is a good plan, if records are kept so that 
the debtor is traced from point to point and mem- 
oranda made of his success or ability to pay. With 
judgment entered, you are then ready to transcript 
promptly and many times can secure lien on prop- 
erty. One fair-sized account saved will pay the 
costs of many judgments. In former chapters, 
especially in that entitled " The proper use of state- 
ments made for the purpose of obtaining credit 
extensions, and some court decisions," will be 
found many more suggestions for the collector, 
but it would take many chapters to exhaust this 
topic, and we must leave it for the reader's indi- 
vidual amplification. 



CHAPTER XIV 



Suspended Accounts 

A properly managed business will require all 
doubtful accounts to be taken from the " Cus- 
tomers' Ledger," and will not count as an asset the 
full amount of an account which is suspended by 
reason of Assignment, Chattel Mortgages, etc., un- 
less it is adjusted by satisfactory short-time se- 
curity, so there will be no doubt of payment in 
full within a reasonable time. 

There are many systems in use to look after 
these suspended accounts, but all agree in the main 
features. 

The first step is to charge to " Suspense ac- 
count," (which is one of the accounts usually kept 
in the " Private Ledger,") the full amount of the 
account and thus to balance the account upon the 
" Customers' Ledger," and as payments are made 
upon any account thus transferred, the amount of 
the payment is credited to " Suspense Account." 
This " Suspense Account " is simply the " omni- 



196 CREDITS, COLLECTIONS MANAGEMENT 

bus," where all these totals are posted, and the ac- 
count will show amount suspended. At the close 
of the year the suspended accounts are carefully 
considered and their worth conservatively esti- 
mated, and sufficient is charged to loss and gain 
account, so that the balance of " Suspense Ac- 
count " is the estimated realizable value of the ac- 
count. 

It is not our purpose to do more than suggest 
the accounting departments' treatment, for the dis- 
cussion would cover many methods and would 
need to be exhaustive if we undertook to treat of 
accounting. 

After these accounts have been placed in sus- 
pense, the " Credit Department " will then arrange 
for some record such as will at all times show the 
exact condition of each account, as well as all 
that has been done to adjust it. All methods of 
treatment should contain the following features. 

A ledger with sufficient space for each account 
to be entered separately, giving dates and amounts 
and maturity of each unsettled invoice or note, to- 
gether with credits properly belonging. Place for 
transfer, judgment, and document file numbers. 
Place for name of correspondent or attorney, with 



SUSPENDED ACCOUNTS 197 

address; this space should be large enough to 
change address several times, if the debtor re- 
moves to other localities. There should also be 
sufficient space for condensed notations of letters 
written and received regarding the claim. 

It is assumed that claim has been given to some 
local attorney to look after and take advantage or 
make report of any opportunity to collect, but if 
this is all that is done we may be assured only a 
few of our claims will ever be collected. 

A claim should never be lost sight of; the record 
should show it has had personal attention at prop- 
er intervals. A debtor does not always remain 
bankrupt; he is quite likely to retrieve his fortunes 
and will, if properly treated, often make payment. 
But while these claims should never be lost sight 
of, we should not feel justified in so harassing the 
debtor as to discourage or hamper him, so that 
he never can get in position to make payment, but, 
as he changes his location, condition, position, etc., 
make a note of it, and as long as possible keep 
posted regarding him. It is always advisable to 
place account in judgment; this lengthens the le- 
gal limitation, and you are constantly in position 
to make levy or take other action quickly if it is 
advisable. 



I90 CREDITS, COLLECTIONS MANAGEMENT 

Dates of all judgments should be entered, and 
the varied laws complied with according to the 
statutes of each State, if it is desired to continue 
the life of the claim. Since the repeal of Bank- 
ruptcy law, systems for handling this work have 
multiplied, so that application to the leading sta- 
tioners will result in opportunity to decide which 
is the best for a particular kind of claims. There 
will be continual surprises as this work is care- 
fully followed; claims that had little of promise in 
them have been fully settled. A homestead has 
been given up, forgetting all about judgments, and 
when sale of property has been made, the judg- 
ment is paid off. A debtor may inherit property, 
and as a very large proportion of them are honest, 
payment will be made, often voluntarily, but if not, 
then, having kept track of him all these years and 
followed these suggestions, you are in a position 
to compel payment. 

So we may well say that in this, as well as in 
many other features of the work of the credit- 
men, industry, vigilance, attention to details, and 
persistent effort will win where failure thus to do 
will result in loss. 



CHAPTER XV 



Reciprocal Relations Between Attorneys and 
Credit Men. 

There have been many articles during the past 
years, and especially during the past few months, 
which have been so vigorously partisan, and in 
some instances so narrow, that we are tempted to 
seek a broader view in our effort to answer some 
of the questions growing out of the one great 
theme : " What reciprocal relations should exist 
between Lawyers and Credit-Men?" 

The attorney charges the credit-man with being 
a sponge, absorbing all gratuitous information; 
an ingrate in being unwilling to pay for services; 
an imbecile because he makes some unwise cred- 
its, and a clam because he sticks pretty close to 
business, and doesn't advertise to the world all he 
knows. 

On the other hand, the credit-man asserts that 
the attorney has no business to make careless re- 
ports for pay or gratis ; accusing him of misleading 



200 CREDITS, COLLECTIONS MANAGEMENT 

for a purpose, and of favoring the local merchant. 
He further makes claim of negligence in corre- 
spondence, failure to remit promptly, lack of judg- 
ment in handling claims, and is possessed of an 
unreasonable estimate of the value of his services. 

Can it be that all these things are true? Yes — 
and, some will add, "the half has not been told." 
Still one cannot help but believe that much depends 
upon. the point of view. 

The artist sees in the Niagara Falls a beauty he 
prays for ability to portray, while the fuller sees 
but a good place to suds clothes. 

Because one is a credit-man we see no reason 
why he cannot see some of the faults of the cred- 
it-man, for he has many serious faults. Some faults 
imputed to him, however, may be virtues and pos- 
sibly are the reasons for holding his position. 

Attorneys, and especially Collection Agency 
Managers and publishers of attorneys' lists, too 
often fail to comprehend the fact that most credit- 
men are themselves trained and expert collectors. 
Another fact which is not appreciated is, the Cred- 
it Department's Attorney and Collection Fee Ac- 
count is compared with former years' expense and 
salary, in a measure is contingent thereon, but, let 



RELATIONS BETWEEN ATTORNEYS, ETC. 201 

it be understood, that by the side of this, is placed 
the annual percentage of losses. 

Now, let us remember, that with expenses cut 
down to the minimum and with goods sold at the 
maximum, competition, etc., considered, there is 
not sufficient profit left to warrant placing accounts 
for collection on the ten per cent, basis, until there 
are almost unmistakable indications of the neces- 
sity of such action. 

Not long ago I saw a letter from a prominent 
publisher of attorneys' list, stating he had received 
very few notices of claims from the house, and 
suggesting possibly his list was not appreciated. 
Of course, it was one way of pushing business, but, 
after all, led us to believe that he had a high esti- 
mate of the number of claims which should be 
sent to attorneys. The average house subscribes 
to two Mercantile Agencies, one draft Collection 
Agency, one Reciprocal Reporting Agency, and 
has a line of bank and attorney correspondents, all 
of which helps to create a fair sized " report ex- 
pense account." 

In favor of the attorney, we can say, he has 
spent several years and* considerable money pre- 
paring for his life work; in some cases he has 



202 CREDITS, COLLECTIONS — MANAGEMENT 

waited a few years for recognition, he has a high 
appreciation of his profession, and is cautious in 
adopting so-called unprofessional methods. This 
does not by any means sum up all merited com- 
ment, but we will only add, he is worthy of his 
hire. 

It is not uncommon to find the old-line attorney 
frowning upon the Commercial Lawyer as if he 
was an inferior, but the Commercial Lawyer has 
come to stay, new and businesslike methods are 
being used to attract business, and now we are in 
an age of business-getting attorneys. Credit-men 
do not now think of forwarding collections to an 
attorney who does not keep his name in the recog- 
nized lists for that purpose, unless as a last resort; 
and it is probably safe to say that the more fre- 
quently revised lists and the publications known to 
advertise only those names which are paid for, 
are the most to be depended upon. A publisher 
who exacts pay for representation in his list must 
be more careful that none but worthy names are 
used in his advertising columns, thus assuring 
more reliability. 

Credit reporting as a method of opening the 
way for a collection business is now under discus- 



RELATIONS BETWEEN ATTORNEYS, ETC. 203 

sion, and it is hoped that free expression and care- 
ful consideration may result in proper adjustment 
and understanding of reciprocal relations which 
should exist between attorneys and credit-men. 
Perhaps no class of people are asked to do more 
for nothing than lawyers. They are expected to 
report for every one and upon everybody about 
whom inquiry is made, and if they fail to report 
carefully all details, complaint is made. Many 
credit-men will obtain information year after year 
for which they pay nothing, will go into a town 
and collect their own claim, and not even give the 
attorney a friendly call or an opportunity to make 
even a small fee. 

Let it be said: It costs the attorney something 
to place his name before us, and his purpose in 
advertising is not the privilege sought of report- 
ing, except as a means of opening the way to earn 
a fee, and it is solely for this purpose. 

An attorney from a small town asked: " How 
can you expect any care in reporting when it is 
known that you inquire of two attorneys? They 
must know that both cannot get your business." 
At first this appears to be unanswerable, but let 
it be borne in mind, that if the time does come 



204 CREDITS, COLLECTIONS MANAGEMENT 

when the services of attorneys are needed, the 
claim will go to the one who shows an effort to 
attend to even a small item of business. 

Now the credit-man does not need the attorney 
nearly as often as is generally supposed, but there 
are times when he is needed. There ought not to 
be that disposition in the credit-man to want all 
for nothing, nor should there be a desire on the 
part of the attorney to absorb all profits, or a feel- 
ing that he ought to have all slow claims. 

As to reporting; much can be said on both sides, 
and the publishers of lists could be of assistance 
to all if they would designate by some sign those 
who are willing to give careful reports gratis; 
those who will report for from ten to twenty-five 
cents, and those who do not wish to report at all. 
There need be no hard words about it, it is the 
attorney's privilege to do as he deems best, but 
until some such plan is adopted, the credit-men 
are justified in considering the long-established 
custom unchanged, and in continuing their in- 
quiries. It stands to reason, that in the little towns 
the attorneys and the bankers are best posted re- 
garding the financial condition of merchants, an'. 1 
it is very little trouble to make a report nearly 



RELATIONS BETWEEN ATTORNEYS, ETC. 205 

correct; in the towns a little larger some little time 
and more effort are necessary, and the remunera- 
tion for report could reasonably be expected to 
increase according to size of town. 

In any of the towns, if the credit-man knew that 
some attorney kept a brief record of conditions 
and carefully noted names of inquirers, and noti- 
fied in case of trouble, they would gladly send ex- 
tra postage or other small fee, and feel that when 
the time came for action their attorney would pro- 
tect their interests, and it would be found that 
the collection business of the town was captured 
by this enterprising individual. 

Some are now adopting the custom suggested 
before, of sending ten cents postage with each in- 
quiry, and have noted improvement in reports, and 
are pleased with results — a small amount? Yes, 
but it is helpful to all interested. 

But here comes the trouble: the attorney keeps 
no record of those inquiring, the merchant is in 
a critical condition, this news reaches us from 
other sources, but, still, the attorney feels (al- 
though he did not care enough for our business 
to even index our name by the side of the one 
inquired upon) that we have not treated him fairly 



206 CREDITS, COLLECTIONS MANAGEMENT 

if we do not send him the claim simply because 
he had once reported upon the failing merchant. 
We may be sure an attorney is in better position 
to collect a claim when he has once made a care- 
ful report after interview and investigation, and 
this should be borne in mind by credit-men as 
well as attorneys, and should call for recognition 
by former and more careful investigation by ^ 
latter. Some attorneys claim if they make a correct 
report they defeat their own business, for then the 
bill would not be sold, etc., etc. 

Now, let our good friends the attorneys bear 
in mind, while we appreciate their reports, and 
rely a good deal upon them, we very often fill an 
order against their judgment, the profit in the 
sale, other reports outweighing, or other reasons 
influencing the decision to take the risk; we are 
often anxious enough for business to take some 
chances. 

Attorneys would be justified in making a list of 
concerns always asking reports, and never having 
a collection for attorney, in fact, this move is al- 
ready under advisement with an intent to refuse 
such parties reports without fair remuneration, for 
this is all the attorney can expect from some, but 



RELATIONS BETW1EN ATTORNEYS, ETC. 207 

it is questionable if a boycott should be universal 
because there are some unjust concerns. Let us 
try to be reasonable, recognizing the need of re- 
ciprocal relations. 

Permanent Counselors. — Every credit-man 
should select the very best commercial lawyer in 
his town, and their relations should be intimate. 

The lawyer should be one in thorough sympa- 
thy with the credit-man and anxious for his suc- 
cess, and very free to advise on all matters placed 
before him. We believe in the credit-man knowing 
all the law he can and keeping as well posted as 
possible upon recent decisions or changes in the 
statutes, and when we say this, it is with the firm 
conviction that the more he knows of the law the 
more will he appreciate how utterly impossible it 
is for him to keep up with his reading so as to 
avoid the need of his lawyer, and, in fact, we main- 
tain that the better insight he has into commercial 
law, the more will he esteem the counsels of his 
lawyer. The amount paid, either by annual con- 
tract or upon specific charges, should be consid- 
ered one of his very best investments. 

Retaining Customer. — One good reason why 
more accounts are not forwarded to attorneys is 



208 CREDITS, COLLECTIONS — MANAGEMENT 

that too often the attorney seems to think the only 
reason the claim is forwarded to him is for col- 
lection. This is the prime reason, but we want it 
done in such a manner that the debtor will con- 
tinue friendly toward the house, and will continue 
his patronage if desired. Now, some of the cred- 
it-men readers will join the attorney's cry in say- 
ing " certainly you would not sell goods to one 
from whom you had formerly made collection 
through attorney." But let us look at it a mo- 
ment. Collections are sometimes sent to attorneys 
when there is no fear of failure; the debtor is care- 
less and needs to be brought to his senses; per- 
haps his funds are being used in other enterprises; 
often he is crediting too freely or doing too much 
business for his capital, he may be temporarily 
overstocked; local conditions may be such as to 
limit the circulation of funds, but not such as to 
raise the question of his solvency. 

We want the attorney to feel that for the time 
being he is one of us and not only has an interest 
in our collections, but in our sales; and we want 
him to always have our future relations with the 
debtor before him; and with this reciprocal feeling, 
we believe he will conduct negotiations in a very 



RELATIONS BETWEEN ATTORNEYS, ETC. 209 

different manner than is often done. Yes, we want 
our debtors to understand that we are not un- 
reasonable; are not desirous of causing unneces- 
saTipnhacdships, twit; leather, have their best inter- 
ests at> faeairt ttndtarl© ansious to have them see the 
darigerstheyrtmay r be^d before iH'is too late to cor- 
rect their :'-<$rr0Ps J ciWeltfwauJdc not b&) understood 
as^meaffiingi ttotlwendalnot wanti^h0rclairmt cared 
ki^tm&dhet M WJe:iwMt Ur// handled r jih Janlifeteste 
wayj'btrfr we': waritlbre^drrbiasifiess spriikiplie-to pre>f 
vrftlfvdoiq si c53i to stoe i&isns-g aril slirfW .nwoJ 
*£^omptrtu^ev'Jw3Jiichbi|f>r. 5ghatmee$ tenksbwitfs 
pS#e*fa§ tfre tow&seidktyQv&^ie&toUgt&txies&&. 
ptG&p&ifteei&oii&d and^f>ro*Mptn?epi^ii3fc<DD ctJrre^ 
sfMdgritJ^fe ifinM$}*& %ti desired™ rWi^ffj && 
AdariSs^^h^^id-^fnd^ctston :&^Tne^fiten ^wifh >Wsl 
e©flfi'<fenc©';*3rrfaii^^ 

exfteraal : mftwemm 7 w^ Qskes ( clear 1 jrs silids thinks 
eteMft iwSt jffeSesskrir^ decide 1 prompt!?. ^ &nd;-©f 
alfc^retehed icfckrafctew the ^Hfiaw^hotogan never 
ftl&fee i^htesriintfr'iAhe' most wretched." Having 
decided — act. If a claim cannot be handled for ten 
per cent., attorney should say so promptly. If 
the credit-man will not pay more there need be 
no hard feelings or hard words. If claim is not 



210 CREDITS, COLLECTIONS MANAGEMENT 

collected, let not the credit-man say the attorney 
is incompetent, dishonest, or lazy — all claims are 
not collectable. 

Compensation. — Some attorneys are so short- 
sighted they can only see one claim at a time, and 
for fear there will never be another from that 
house, that one must pay all that can possibly be 
made from it, fair or foul; but there is an here- 
after, and the house will continue to do business 
for years, and may have more claims for the same 
town. While the general scale of fees is probably 
as definite as can be made, it does seem that 
some claims are too easily secured or collected 
to be charged ten per cent., but few attorneys 
are magnanimous to the extent of charging less. 
But some claims are worth more than ten per 
cent., but few credit-men will pay more, because 
they feel they will be charged ten per cent, on the 
easy one anyway. Ralph Waldo Emerson proba- 
bly was not a student of credits, but in his great 
essay upon " Compensation " he has said what 
needs to be well considered by credit-men : " He 
is base — and that is the one base thing in the uni- 
verse, to receive favors and render none. Has a 
man gained anything who has received a hundred 



RELATIONS BETWEEN ATTORNEYS, ETC. 211 

favors and rendered none? The absolute balance 
of give and take, the doctrine that everything has 
its price, and if that price is not paid, not that 
thing, but something else, is obtained, and that it 
is impossible to get anything without its price, 
is not less sublime in the columns of a ledger than 
in the budgets of State." 



CHAPTER XVI 



Cannot Credit Men Be Too Careful? 

. From the many very valuable articles published 
concerning methods of determining lines of credit 
and plans for collecting promptly and ways of ob- 
taining securities, and from the suggestions of 
withholding orders because of failure to make 
signed statements or return of a draft or having 
an overdue account, we have wondered if, possibly, 
the less experienced of our readers might not 
reach the conclusion that the sole business of the 
credit man was to prevent losses, and so we have 
raised the question, Can credit men be too careful? 
We recall a sentence which appeared to us to have 
much force, we quote: "It is the business of the 
credit and financial manager to take the finest 
product of all economic knowledge and fuse it into 
business life." 

We have talked with several credit men the 
past few years, and find one of the chief sources 
of pride is that of a small percentage of losses. We 



CANNOT CREDIT MEN BE TOO CAREFUL 213 

believe in most instances this pride is commenda- 
ble, but there may be certain limitations to the 
desire to have small losses, and it may not always 
be the most profitable thing for a house to have 
too conservative a credit man or one desiring to 
limits losses only. 

Is there not such a thing as losses being too 
small to be profitable to the house? This question 
may sound paradoxical, but when fully understood 
it is not. The credit man must bear his share of 
responsibility for the net result of the business; in 
a measure, he is responsible for the volume of 
sales and the resulting profit, and " capitalists are 
learning to say to their credit men we can afford 
to take some chances for the profit in the sale ; we 
can stand a reasonable percentage of loss upon a 
good volume of business; not every one who has 
unfavorable features in his report will fail, not in 
every case will we fail to obtain first securities, do 
the best you can to allow us to make our volume 
of sales, and losses to a reasonable per cent, will 
not be cause for complaint." 

It is possible the reported losses of one-tenth 
of one per cent, on several years' business prove 
profitable to one or two houses, but we venture 



214 

to predict that an effort to keep within that amount 
in many lines of trade would result in a large de- 
crease of business. There are certain fixed ex- 
penses that cannot be avoided nor very largely de- 
creased; there must be sufficient business to make 
profit enough to balance this and the losses; the 
volume of business beyond this point does not 
represent the same percentage of expense for con- 
ducting the business, for, after insurance, taxes, 
rent, and officers' and salesmen's salaries are paid, 
the necessary help for handling a larger business 
is not nearly as expensive. 

So we come back to that proposition of taking 
all the finest product of economic knowledge we 
possess and fusing it into business life — casting out 
the dross, retaining the best of all elements, con- 
sidering the probabilities of business life, taking 
into account the profits following a sale and not 
being unmindful of the chances of loss. 

We would not suggest less skill be exercised, 
nor that there be any laxness in attention to col- 
lections, but that the credit man should not mourn 
too much over a loss, feeling that he should have 
no losses. Some of the most successful houses we 
know of are those whose losses exceed the ad- 



CANNOT CREDIT MEN BE TOO CAREFUL 215 

mitted average for their line of trade, but by reason 
of the application of this economic knowledge in 
many of its phases are still successful. 

We cannot be too studious of all the phases of 
these questions, and we should avoid extremes 
either in minimum or maximum losses, and may- 
hap should be more " mejum," as Aunt Samantha 
said. 

When considering the presentation of this ques- 
tion we conversed with one of the older heads of 
the profession, and he said, " yes, that's just the 
mistakes my house made; we were too afraid of 
losses, and curtailed our business too much." An- 
other to whom we all look as one having au- 
thority to speak, said, " There is no advantage to 

a house in my line having less than per cent. 

of loss on their sales." " We are careful, but still 
we take a good many chances," said another. An 
attorney said, " One per cent, on the sales of 
does not worry them; they thrive upon it." 

Possibly that is one of the main benefits of Credit 
Insurance (we cannot say); up to a certain point 
the house is protected; business may possibly be 
increased by this easier feeling, although we think 
this is not one of the advantages claimed. 



2l6 CREDITS, COLLECTIONS MANAGEMENT 

Then let us bear in mind that the use of all 
phases of economic knowledge is desirable, ex- 
penses to a certain amount are fixed, there must 
be a reasonable volume of business. The net result 
of the business is in some measure due to wise 
management in credit department, as well as in 
sales department, and with this let each do his very 
best, not becoming discouraged if some losses do 
come. 

And now let us ask, is our question paradoxical, 
" Is there not such a thing as losses being too 
small to be profitable to the house?" 



CHAPTER XVII 



What Can Credit Men Do to Reduce the Number 
of Losses? 

Surely a good text to meditate upon, and should 
many put their thoughts in writing, we would 
have a library worthy our careful consideration. 

We would recommend the practice of going over 
carefully all reports and records, noting the lack 
of any information which would have been of es- 
pecial value in avoiding a loss now incurred. It 
is advisable to carefully consider your method of 
handling the account and place a cautionary signal 
at the weak points for future warning. It is not 
a pleasant undertaking, when we have had a loss, 
to try to determine what might have been done 
to avoid it, but it certainly is very profitable to 
endeavor to find the causes leading up to the fail- 
ure and to discover errors made. If we cannot re- 
move them then our power of discernment is the 
great qualification to be exercised. 

It hardly needs be stated, for it is an axiom, 



2l8 CREDITS, COLLECTIONS MANAGEMENT 

that to the extent we are successful in removing 
the causes leading up to disaster, just to that very 
degree do we reduce the number of our losses. We 
can hardly do better in considering this question 
than to refer to the valuable compilation and clas- 
sification of failures and their causes made by The 
Bradstreet Company, and from these authentic 
figures seek principles we may adopt in our efforts 
to remove some of the causes. 

While in this discussion we seek more especially 
to point out what the credit-men may do to reduce 
the number of their losses among the retail trade, 
we trust we may make some clear statements that 
will help to reduce the number of failures of job- 
bers and manufacturers as well as retailers. 

Lack of Capital. — This seems to be the most 
prolific cause of failures, and one of the hardest 
ones to overcome, for in the consideration of this 
question we are confronted by many other ele- 
ments which have their various influences. Many 
men have sufficient ability to make a success of 
business with a very limited capital, while others 
would fail under exactly the same general condi- 
tions, the failure or success depending upon the 
quality of the brain, the energy, economy, discern- 



O O 

00 -i oo' O M O M o' N rood 

:oo ? lt.co in s ic -vf o> 

ti-.c o •-__ r» e> <n in N IN 

oo -* in cnco' r, m rn m h vo 



m c- 
°" *? ^ 

CN ino" 



tj-vc moo - cn en 
mnri't i- oo vq_ « 
cs cn ino ^^-O s 

COO ^-"d-<N t-~ <N cn 



vj o 



in o ino oo oo o in O O 
tj- -. o en <n tj- t^oo O «oo 
"-. o Tt- ro^NB mtno 
h h n s N in ti mo in 0> 
s co N oo * n in moo - « 
iosh h co_ h h o to o^ in 
in cf (N oo' cn" cn" <n" cn no 



oo (no o in o <noo oo mn 
o cn omaoo t~- cn t-~ t^ -*■ 
in mio <N-*0(N rn o~mm 



mroNM o> o t-~ 
tnoo O m -<t-vo m 



«>no oo ti a -ta 



in c> cn m in 



omiom 



m ■* cn 



■*oo O 
t^ t>- cn t-^ 

tsoco m 



cn-^-oinooow o 



oo o oo o cnoo *n*n o 
mjocoo o- m m m ■* m 

CN M CN O in O OO H lOCI 

d o"o" cncN"tCo-<f-*mcn 
>no t-^ cno f^ o m •*■ cn 



%$ 



y? O 
^<5 



(NNCNTj-HcqowHcnin 
h ino en " o -too cn m 
cn w t^t-^CTi^O min «> 
cneTtCincnH'M'cTcfiinin 



in cn O00 cn cn oo ■*• 
oo o cms cno « ■*■ m 

COM3 H H ntci H h 



<<S 



cnoo o-cnt-~.o mo cncN 
ooo omo-t'tio moo 
oo o o o com mioH i-i 



rt (" S 



'ho .- 

,-Cj jj 'g U 



*j cu <-> 

^'C*i ... "> rf ^"3 *- *z 

§•« o £ « > tS «J Si3„ 

ygrtCojx<oo~a2 



< 
H 

Q 
H 
H 

&a • 

s< 

'ilO 

£* 

<& 



td Q 



t/lco 

C/5 h 

gvO 

go? 
C/) M 

PQhH 

h 

o 

« 

D 
Z 

o 
w 
< 

H 

w 
u 



in 
••>. oo 


vC CN « t If, t - [^00 M CN 

oo i" r . r~. m cn m roOfl 


■m CO 

^1 " 


■«-t^.M mmooi o-, o OO 
^r « cn 



- 


m 


NC-0 


u-, ; 


r^ 


m C 


<*-00 


' r 


<3 


00 


H 


o 












H 




















CI 




T X 












CO 




■4- t-~ 


^ 










fei 

















^~ 



^^ 



cn t}- t^- q u-jvo ino ino O 

O H oih h « oin 






.3 o 

^°2 



<3 o\ 
•~ oo 

S) H 






51 



5u in.- n hnm^ 



M. 



c rt c a« >< >--r 



31 



nt C 



2 20 CREDITS, COLLECTIONS MANAGEMENT 

ment, character, habits and such other character- 
istics and qualifications as accompany or supple- 
ment those named. One lacks sufficient capital 
when he cannot pay in full for his first stock, and 
we ought to discourage the sale of a new stock if 
credit is sought upon any large part of it. 

When one has commenced to be delinquent, it 
is certain he is doing his business in such a man- 
ner as to prove his capital inadequate. Now if 
we should insist, at the very outset and ever after, 
that obligations be met promptly at maturity, we 
would compel him to change his methods and 
conduct his business to conform to his capital. 

Branch stores are a dangerous undertaking. 
Often the merchant thinks he can divide his stock 
and open a branch at a smaller town, and does 
not consider the limitations of his capital and the 
extra demands to be made upon it by additional 
expenses, larger purchases, more outstanding ac- 
counts, etc. The branch store should be discour- 
aged unless the dealer has sufficient idle funds to 
stock it complete. The merchant should under- 
stand that he has no right to do a credit business 
upon other peoples' funds, and if he only has suf- 
ficient capital to purchase first stock, he should 



REDUCE NUMBER OF LOSSES 221 

appreciate the danger of crediting to the amount 
of his capital, when he must replenish his stock 
upon credit. 

Evidently, then, the great dangers to the busi- 
ness men of this age are wrapped up in the ex- 
pression "overreaching"; that is, endeavoring to 
do too much upon too little capital. But we who 
grant credits and manage finances are often the 
cause of a failure, which is classified under the 
heading " Lack of Capital." In our eagerness to 
do a large business we offer inducements to make 
purchases beyond the wants of the business. We 
agree to carry certain amounts. We date ahead 
and agree upon extra time. These and other in- 
ducements we offer are tempting and misleading 
and very dangerous to the merchant, who looks 
with pleasure upon the offers of the various con- 
cerns anxious to sell him goods, but he does not 
realize how eager they will be for their money 
when the obligation matures. We are not as urgent 
for promptness upon any invoice as upon the one 
with advance dating. We often encourage a man 
to add a new line just because we want the cus- 
tomer. We must acknowledge our responsibility 
and seek to do that which will be for the best in- 
terests of the commercial world. 



22 2 CREDITS, COLLECTIONS MANAGEMENT 

Disaster. — Under the head of Disaster we find 
the next prolific cause of failures. This is meant 
to include losses by flood, fire, crop failure and 
commercial crisis. Losses covered by flood are 
not frequent, but when occurring are likely to be 
very disastrous. Insurance cannot cover this, and 
we can do nothing to remove the cause, and can 
only take the loss philosophically and perhaps 
make an effort to place the unfortunate ones on 
their feet again. Fire losses can be guarded against 
in this age of insurance. The only wonder is that 
so little inquiry is made and so few houses insist 
that their debtors carry liberal lines of insurance 
in reputable companies. The average retail mer- 
chant would be ruined by fire if he was not amply 
insured. We are in a position to insist upon com- 
pliance with this rule of safety, and are not justified 
in granting credit to those who will not carry in* 
surance. 

Many retailers need only to have their attention 
properly called to the matter, while with others 
we must insist, by withholding credit until insur- 
ance is written. We cannot always avoid loss from 
this cause, for policies will expire and insurance 
companies fail (or fail to pay), but, truly, we can 
prevent most of this class of losses. 



REDUCE NUMBER OF LOSSES 223 

Commercial Crisis. — A commercial crisis or 
panic is sometimes impossible to predict in time 
to prepare to meet it, but it is probably not too 
much to affirm that nearly every crisis has been 
anticipated by its prophets. True, there are many 
false prophets and many " calamity howlers " in 
the land, but the consensus of judgment of leading 
financial men is quite likely to be correct, and due 
consideration may well be given to notes of warn- 
ing. Earnest study should be made of the signs 
of the times, with careful comparison of the former 
history of effects which have followed conditions 
similar to those now existing. 

For many months preceding the panic of 1893 
conditions had existed such as to warrant the beliei 
that a crisis was approaching. The financial men 
who made close study of these conditions had set 
their houses in order, and for some time previous 
to the arrival of the " cyclone " had been taking 
steps through their salesmen and correspondents 
to advise carefully with their customers. Many 
merchants will accept the advice and admonition 
of the financial man of the house with which he 
is dealing more readily and kindly than that which 
comes from any other source. 



224 CREDITS, COLLECTIONS MANAGEMENT 

We may well conclude, then, that the credit- 
man owes to that part of the financial world with 
which he is in touch to fearlessly give his opinions 
of the approach of any crisis. 

Incompetence and Inexperience. — There appear 
but two ways in which we can reduce the number 
of losses from these causes — Education and more 
restricted lines of credit. 

Education is a process we can only enter upon 
to a limited extent. The influence of a national 
organization could be used in furnishing business 
suggestions to merchants. 

Some jobbers even now have adopted the plan 
of publishing occasional circulars containing ad- 
vice and suggestions, but have sent them anony- 
mously to such customers as they found to be in 
need of advice of this nature. The national or- 
ganization could furnish valuable literature without 
risk of any house suffering by some who might 
take it as an offence. 

The only way in which the effect of inexperience 
and incompetency can be overcome is by replacing 
them with experience and competency. We can 
impart much of our experience and knowledge if 
we seek proper ways of doing it. 



REDUCE NUMBER OF LOSSES 225 

Is it possible that the future years shall find the 
business world groping as in the past? Is there 
no way than can be devised by which the business 
men can be of a higher order of intelligence? 

Where is the world's benefactor who can say 
just the word that needs to be uttered and in a 
way to be heard and heeded? 

Are you alert to seize proper opportunities to 
urge business education and considerate selection 
and careful fitting for business? 

To a certain extent one must become competent 
through his own experiences, but in a larger meas- 
ure than we are disposed to believe can he be 
profited by the experience of others. 

Fraud.. — Over nine per cent, in 1896, and nearly 
nine per cent, in 1895 of the failures are reported 
as due to fraudulent disposition of property. At 
times it seems that we are powerless to prevent 
any of these, and we often hear it said, " If a 
merchant starts in to defraud we might as well 
throw up our hands." But we can do something 
to prevent fraudulent failures, if we would unite 
to secure more favorable laws for the creditor. 

Consider the many laws which are framed solely 
for the debtor which could be changed. No one 



2 26 CREDITS, COLLECTIONS MANAGEMENT 

has a moral right, and ought not to have a legal 
right, to dispose of merchandise for which he is 
indebted, put the money in his pocket, settle upon 
his own terms and be free from danger of serving 
a term in the penitentiary; and this is only one 
of the many frauds which ought to be prevented. 

We ought more often to take advantage of our 
right of criminal action, for too often we let an 
opportunity of sending some of our friends (?) up 
for a term go by, because we dislike the expense 
and trouble, or because we deem it best to com- 
promise. Some day we may find frauds so nu- 
merous and so brazen we will be forced to rise 
in our might and make examples of a few crim- 
inals. One great incentive to fraud is the apathy 
of the creditor. Are we not responsible for some 
of this? Do we not shirk duty in overlooking 
and compromising fraud? Until the credit man- 
agers throughout the nation realize the enormous 
amount of money lost every year through frauds 
perpetrated by the debtor, and organize in a deter- 
mined movement to bring about legislation such 
as will avoid some of these fraudulent transfers 
and enable us to make it decidedly uncomfortable 
for those who execute them, we may expect them 
to multiply. 



REDUCE NUMBER OF LOSSES 227 

Think of what this means: 1,395 business failures 
in the United States in 1896 due to fraudulent dis- 
position of property. Assets, $5,415,550.00; liabili- 
ties, $13,845.12. It ought to need no ready pen 
or eloquent speaker to arouse us to seek a defense 
against such abuses. The saving of a portion of 
this deficit would enable us to employ able attor- 
neys and agents to carry out methods of reform 
had we, as credit managers, only some way to 
give authoritative utterance, direction and force 
to our plans and purposes. 

Unwise Credits.. — While this cause of failures is 
the sixth on the list, we must believe that, although 
it may not have been the primary cause of more 
failures than are here enumerated, it must be a 
secondary cause of a great many of the failures 
under the other classifications. Experience teaches 
us that a great many of our failures could have 
been avoided had credits been made wisely and 
judiciously, and especially if there had been less 
of them. 

The day is coming (can you not discern it's 
dawning?) when the successful merchant, be he 
small retailer or heavy jobber, will be a student of 
the Science of Credits. More accounts must bear 



228 CREDITS, COLLECTIONS MANAGEMENT 

an interest charge. A larger number of accounts 
must be settled by notes and notes paid promptly. 
A dishonest man will not be trusted, and an honest 
man will need to have something in addition to his 
honesty to establish his credit. 

Neglect Of Business. .—In this we include specu- 
lation outside of regular business, neglect due 
to doubtful habits and personal extravagance. As 
a general rule, speculation outside of regular busi- 
ness should be discouraged. Very few men are 
capable of giving attention to more than one line 
of trade. The man who dabbles in options is very 
uncertain. 

Doubtful Habits. — We too often risk our goods 
with men who show more and more each time we 
meet them that dissipation in some form is leaving 
its unmistakable mark. But we must tread lightly 
here, for in almost every house there are salesmen, 
or mayhap some member of the firm, who sees that 
the visiting customer has enough to drink and is 
" shown the town." Although it is done to bind 
the customer more closely to the house, it is not 
infrequently the case that he goes away with less 
resoect and confidence than ever before. Many a 
credit man has earnestly desired that this ex- 



REDUCE NUMBER OF LOSSES 229 

pensive and pernicious custom could be wholly- 
abandoned. We help to encourage the doubtful 
habits which so frequently cause failures. Are 
we seeking to remove this cause of failure? 

Extravagance. —This is one of the questions 
hard to be informed upon. All statements made 
for the purpose of obtaining credit should include 
the business and personal expenses of the firm and 
of individual members. Frequently we can learn 
of the fine house being erected or the new and 
elegant furnishings, and if our account is past due 
we are wondering if our funds are not providing 
possible extravagance, and we make anxious in- 
quiry whether or not our -funds are being perma- 
nently invested. We can probably do little towards 
eradicating this evil other than to curtail credit. 

Failure Of Others. — One of our best merchants 
wrote some time ago that he did not want to sign 
bonds, but was often asked to do it. He some- 
times feared to offend, so asked his creditors to 
write him a strong letter reciting the dangers of 
such practice and stating they would not grant 
credit to parties signing bonds. He realized the 
danger as do few men. There are companies or- 
ganized for the purpose of furnishing indemnity, 



230 CREDITS, COLLECTIONS MANAGEMENT 

for which small premium is charged. Advise your 
customers to direct their needy friends to these 
companies. Endorsing notes for others should be 
done very seldom, if at all, and for such amounts 
that the loss would not be serious. 

Competition. — Competition is the great motive 
power of production and enterprise, but it has been 
called more hard names, mean and unwarranted, 
than almost any other commercial factor. Nu- 
merous suggestions have been made for its entire 
removal, but as yet all attempts to supersede com- 
petition by any other motive to exertion have been 
unsuccessful. Our compilers show that only 3 6-10 
per cent, of the failures were caused by undue 
competition. This would seem to indicate that it 
was not such a terrible monster as some fanciful 
writers are prone to depict. 

It is probably the cause of a thousand successes, 
while possibly being the cause of a few failures. 
It stimulates activities, compels studious manage- 
ment, prunes expenses, places superior goods upon 
the market, regulates prices within certain limita- 
tions and many more good things could be said 
of it. 

We would like, however, to see failures from 



REDUCE NUMBER OF LOSSES 231 

this cause reduced to even smaller proportions, for 
we are ready to admit that abuses exist. Although 
many failures are not caused by undue competition, 
we are sure a more wise competitor would assure 
more rapid and certain successes. 

What are the abuses for which credit men are 
in a measure responsible? Long and unmerited 
credits. We often compete for trade by making 
a bid to carry a larger line of credit than conditions 
justify and agree upon a certain amount \hat may 
be extended when due. We throw away exchange 
on drafts or allow a man to send us checks on his 
home bank and compete for his trade upon un- 
businesslike principles. 

We tell our salesmen to get all the orders they 
can and do not advise them to use some judgment 
in selling a man about what he needs. We com- 
mence in the fall to give spring datings, and in the 
summer to give winter datings, all for the purpose 
of loading him up so the next man cannot sell him. 

While we are taking these unbusinesslike steps, 
the retail merchant is following our example and 
is crediting beyond reason, is carrying accounts; 
too long without interest, is urging goods too far 
ahead of their season and selling upon too small 



232 CREDITS, COLLECTIONS MANAGEMENT 

a margin of profit, gradually getting into deep 
water. We are not only encouraging dangerous 
methods for the retailers, but if we are not very 
cautious, we may be competing so vigorously as 
to draw the life from our own business. 

Would that we might see more clearly and judge 
more wisely and act more courageously and be 
more successful in our efforts to remove some of 
the causes of business failures. 

In conclusion, the author wishes only to add 
a word of kindly appreciation for the many letters 
of encouragement received from all sections of the 
United States and Canada. He cannot help but 
feel that he has been highly honored in the kind 
consideration of the many thoughtful readers. 

This has not been an effort to theorize, but an 
attempt to give a modest statement of principles 
and methods governing his work, and with the 
firm belief that: It is the business of the Credit 
and Financial Manager to take the finest product 
of all economic knowledge and fuse it into Busi- 
ness Life. 



APPENDIX 



Additional Credit Department Forms 

Throughout this book we have freely used Credit 
Department forms in connection with the discus- 
sion of the work of the Credit Department, but it 
has not been thought advisable to extend our dis- 
cussion to include the topics of Monthly Abstract 
and Trial Balance; Forms of Guarantee; Proof 
of Claim; Lease and Commission Contracts. In 
order, however, that the reader may have the 
benefit of these forms, we append them herewith, 
believing that the forms will be self-explanatory. 



CREDITS, COLLECTIONS MANAGEMENT 






S .^ 

1- ."3 



6 § 



1) o > O 



« rt o - o 



A 
£# 



■3 -3 u o * 



•~ . >- 



S * a 

p .2 .2 



€©^©= ^/^~tO CO CO ^^^^ CO CO COCO ^©^© C~^^0 €^^© 4fy4& ifbifo 



u *a tfo d"o jt: ^"a ^tj jfo qJ"*o 

3 *j 3 «-> 3 <-> 3 <-> 3 -u 3j-> 3 u 3 *-> 

rto nSO rtO rtO rtO rtO rtO ei O 

as ac ac as ac ac ac ac 



Z ^ Z **> *!. ^ 



sssssseseEsaeseses 

<< << << « « << « << << 



£ S 

« 






■S * 



t s "S 



6 



> "2 ■« =3 

A 3 C 3 

o rt o 

£ U to 



.so 



W S 



APPENDIX 



II 



£ 3 



e ° 



a, £ 



M <" ffl 

£ 6 S J 

OhJt) 

c 3 o "J 

V P C « 

3 - " 

^ O O C O 

rt c r! rt 

ft f K -s -a 

-*- > 3 .2 u 

O O tr. S -a 



.so :3 .s 



•5 "^ 
15 



8 -c £ 



a! 6 O 



P -a 2 53 fa 





•a u 

C 3 


3 

■a 






> 


rt ^ 


> 






o 


2 a 


■o 




3 


rt 


U 3 


c 




< 


<L) 


c 


s 


J 






is 


o 


,j 


en 


£ c 


o 




< 












O 


>,^J 


>. 




o 


Q 




S 




H 



■^ 4©> 4& 35- 4© 4©= 



co '-3 

S3 

& 8! 

?. c 

D — 

"3 u 

3 f 

•1 -S 

3 S 

c S 

£ 2 

o <a 

>. 



rt 3 



S -S 



J, ^ 



<o .« 



**» 



^ 



^ 



Ill 



CREDITS, COLLECTIONS MANAGEMENT 



This form together with Monthly Abstract shown on next page are valuable in con 
sons made and the condensed information given. 

Trial Balance 189 



ASSETS 



LIABILITIES 



Merchandise 






Capital Stock 




Freight ." 












Fixtures 

Expense 


Catalogue 








Total 









EXPENSE ACCOUNT CLASSIFIED. 



PRESENT YEAR 



LAST YEAR 



Interest, Disc, and Ex. 

Sundry 

Salesmen 

Officers' Salaries 

Help 

Rent 

Insurance 

Attorneys' Fees ',., 

Postage 

Stationery 

Heating 

Taxes 



Total 

Estimated Value . 



Net Expense. 



APPENDIX IV 



MONTHLY ABSTRACT. 

By the use of this form it is made possible to tell very nearly 
the exact condition of business each month. 



Monthly Abstract. 



Former estimate stock on hand, 

Purchases during past month (including freight), 

Deduct net sales for past month (per cent, basis) 

Present estimate stock on hand, 

Estimated stock on hand ( corr X s f; e n a g r month ), 

Insurance on stock, ... - 

" " fixtures, ... 

Gross sales past month, ... 

" previous month, - 

" corresponding month last year 

41 during current year, 

" during former year to same date, 

Expenses to date, ... 

" to same date last year, 
Collections past month, ... 

11 previous month ... 

" corresponding month last year, 

Total outstandings, - 

" " corresponding month last year, 

Indebtedness, .... 

" corresponding month last year, 



CREDITS, COLLECTIONS MANAGEMENT 



GENERAL GUARANTEE. 

This form of guarantee has stood the test of the courts and 
should often be used. 



CREDIT DEPARTMENT. 



For and in Consideration of the sum of One Dollar to the sub- 
scriber in hand paid by the receipt whereof is 

acknowledged; and for the further consideration that said 

sell and deliver unto 

Goods, Wares and Merchandise on credit, on and after the date hereof 

do hereby guarantee payment unto the said 

for ail Goods, Wares and Merchandise so sold and delivered, and for 

interest on such account or sales at the rate of per cent. 

per annum after maturity. 

This guarantee shall extend to all sales of Goods, Wares and Mer- 
chandise made on and after this date, by the said 

to the said and shall continue until notice of its 

discontinuance as to furiher liability therein is given by the subscriber, 

in writing, to the said but the liability of the 

subscriber, upon this guarantee shall not exceed the sum of 

Dollars, and we do also waive notice of pu: chase and 

maturity of bills. 

Signature 

Date 189 

Place 



APPENDIX VI 



AGREEMENT FROM OTHER CREDITOR TO PRO RATE 
SECURITIES. 

Occasionally a bank desires to assist a dealer but cannot loan 
more. The bank indebtedness is always a menace to the credit 
man and he is satisfied if assured of pro rate security. 



"Whereas is indebted to 

in certain sums of money, and 

Whereas of have 

granted unto the said certain credits, and may 

in the future grant certain additional credits to 

Now, in consideration of said credits heretofore granted or to be 

granted by the said to the said 

and in further consideration of One Dollar to in hand paid- 
receipt of which is hereby acknowledged do hereby covenant 

and agree with the said that in the event of 

failure or insolvency on the part of said or in the 

further event of considering it necessary or expedient to 

secure debt in any way, by mortgage, bill of sale, confession 

of judgement, or in any other manner whatsoever, will. 

before taking such security, ascertain the amount owing by the said 

to the said 

and will include the same in the security on the same basis with 

own claim and hereby guarantee to the said 

an equal rate per cent, of the assets 

of the said that 

or assigns shall receive. 

Signature 

Date 189 

Place 



VII CREDITS, COLLECTIONS MANAGEMENT 

PROOF OF CLAIM. 

A claim ought not to be sent to attorney, even if it is not sent 
for immediate suit, without accompanying it with prooi, so as to 
add force to attorney's presentation of claim and also to prepare 
for any steps found necessary. 



I- 



State of 

County of 

On this day of A. D., 189 , before me 

the 

Subscriber a Notary Public, in 

and for County and State of 

personally appeared who being by 

me first duly sworn according to law, did depose and say : 

That he is of the , 

a corporation existing, duly organized and incorporated by a«d under 
laws of 

That the foregoing and annexed account is correctly made out from 

the books of original entry of said , 

and that said charges were made in said books at or about the time of 
their respective dates, and are correct in every particular. 

That the goods, wares and merchandise, for which said charges were 

made, were sold and delivered to 

of County of 

in the State of at 

special instance and request. 

That said goods, wares and merchandise, were fully and rea- 
sonably worth the prices charged therefor and agreed upon by said 

and that the said account is 

just and true, and remains due and wholly unpaid. 

That all just credits have been given to said account, and that there 

is justly due as aforesaid, the sum of 

Dollars, $ from the said to the 

exclusive of any payments or set-off, 

with lawful interest thereon from the day of 

A. D., 189 , and that said , are now 

the bona-fide and legal owners and holders of said account. 

Subscribed and sworn to before me by said on 

this day of 189 

In "Witness Whereof, I have hereunto set my hand and affixed my 
notarial seal. .JZ Tl 



Notary Public. 



APPENDIX VIII 

CONSIGNMENT CONTRACT 

This form has been prepared by a prominent 
and successful attorney, and covers all features 
which have been tested in the courts. 

The statutes and the courts differ greatly on this 
question of consignment and the publicity required 
to make sufficient notice to hold title as against 
third parties. 

THIS AGREEMENT, Made and entered into this day 

of A. D. 1S9. ., between of a corporation 

created, existing 1 , organized, and incorporated by and under 

the laws of the State of party of the first part, and 

of and State of , party of the second 

part, Witnesseth: 
The party of the first part, for and in consideration of the 
covenants and agreements to be performed by the party of 
the second part, agrees to furnish the party of the second 
part, as its agent for the sale of the same, such bicycle as 
may be suitable for said second party's trade during the 
year 189. ., and such bicycles as in the judgment of said first 
party the business of the party of the second part will rea- 
sonably require. The bicycles so furnished are to be invoiced 
to said second party (as per discounts and net prices in 
price list or order slip hereto attached,) and when sold to be 
accounted for by such agent at invoice prices; the said bi- 
cycles to be delivered to said second party at And 

said first party agrees to furnish to no one else for sale in 

the same kind of bicycles that are furnished to said 

second party. 

In consideration of the above agreement of said first par- 
ty, said second party agrees to act as agent of said first par- 
ty for the receipt, custody, and sale of said bicycles at the 
place aforesaid, and agrees to receive, pay advance charges 
on, and safely keep all such bicycles as may be furnished to 
him by said first party, and to hold said bicycles and all re- 
pairs shipped or used in connection therewith as the proper- 
ty of the said first party until sold, and as the said bicycles 
are sold, to forthwith remit cash (when sold for cash) by 



IX CREDITS, COLLECTIONS— MANAGEMENT 



draft, express, or post office money order, with exchange or 
charges paid, or when sold on time, to take leases therefor 
upon blanks furnished by the party of the first part, and im- 
mediately indorse said leases to the party of the first part 
and remit the same to it. All said sales to be made to good, 
responsible parties, and if notes are taken therefor, to be 
taken on the blanks furnished by the said first party, and 

due not later than of 189. .said notes to be secured 

by good, responsible signers as joint makers, or by chattel 
mortgage on personal property worth three times the amount 
of the face of said notes secured, which chattel property 
shall be free from all incumbrances; and said leases or notes 

secured as aforesaid shall draw interest at per cent, from 

date, and be guaranteed by said second party as follows: 
" For value received, I (or we) guarantee the payment of 
the within note, (or lease) or any renewal or extension of 
the same at maturity or at any time thereafter, with costs 
of collection, if any, and hereby waive notice of protest, de- 
mand, or non-payment of same." Said second party agrees 
to sell said first party's bicycles exclusively, unless by its 
consent; to keep said bicycles free from charge for storage 
or any other charge or expense, and to deliver no bicycles to 
purchasers until full settlement is made for them in cash, 
leases, or notes, as herein before provided. The party of 
the second part agrees to keep all bicycles on hand received 
•bj^uoo siin aspunct, insured for full value in the name of the 
party of the second part, loss, if any, payable to the party 
of the first part as its interest may appear. The party of 
the second part agrees to attend to the collection or secur- 
ing of all leases or notes taken by him without extra 
charge when requested by the party of the first part, and 
said party of the second part agrees that all notes, leases, 
or obligations guaranteed by him, or them, if not paid with- 
in ten days after maturity, he, or they, will take up the 
same and pay the cash therefor to said party of the first 
part, and to reimburse the party of the first part for all 
charges it may have to pay in collecting the amounts due 
under said leases or notes taken by the party of the second 
part for bicycles sold by said second party. It is further 
agreed between the parties that the commission and com- 
pensation of said second party for such custody, care, sales, 
and insurance and all other expenses and charges aforesaid, 
shall be the amount remaining after remitting invoice price 



APPENDIX X 

of all bicycles delivered to him by said first party, and pay- 
ing freight and all other charges and expenses for keeping 
and sale of said bicycles of the first party. 

The party of the first part hereby agrees to allow, and 
the party of the second part agrees to receive and accept 
as his full commission and compensation on all sales made 
as aforesaid the amount realized on sales of bicycles above 
the net invoice price at which they are billed and shipped 
out by first party, as a full consideration for transacting the 
business and fulfilling the conditions herein required, speci- 
fied, and implied, commissions to be allowed only on bicycles 
delivered and settled for, and not on orders therefor not 
filled by party of the first part. The party of the first part 
agrees that where bicycles are sold for cash the commission 
shall be paid in cash, and where sold on time the commission 
shall be paid as the money is received by party of the first 
part on collection of the notes or leases taken for the bi- 
cycles so sold on time. It is further mutually agreed 
that if the party of the first part becomes dissatisfied with 
the conduct of the said business of selling said bicycles by 
the party of the second part, the first party may terminate 
the agency hereby created, and the said first party reserves 
to itself the right to rescind this contract at any time if the 
party of the second part shall fail to discharge any of the 
obligations entered into as above, or whenever the party of 
the second part Is not able to fulfill the same, and this con- 
tract at the option of the party of the first part terminates 
and becomes due immediately upon the death or removal or 
sale of business or change of firm on the part of the party 
of the second part. And in case the party of the first part 
elects to exercise its option to terminate this contract for 
any of the bicycles above specified, the said second party 
shall at once deliver to the first party, in good order, all such 
bicycles of the first party's as may remain unsold, free from 
storage and freight, and all other charges, expenses, and 
costs, and all bicycles are not, under any consideration, to 
be used before the selling thereof. 

The ownership of all bicycles furnished on this contract, 
or their proceeds, shall be vested in first party until final 
settlement and payment in full is made to first party by said 
second party, and should first party hereafter conclude to 
take back any part of the bicycles shipped to said second 
party, the said second party is to deliver or reship them to 
first party free of freight and charges both ways. 



XI CREDITS, COLLECTIONS — MANAGEMENT 

The first party reserves to itself the right to deliver or re- 
voke this contract at any time it may deem it expedient, 
and first party is not to be liable for any damages for reason 
of said revocation for any cause, nor shall said first party 
be liable for damages for failure to fill all orders sent it by 
second party. It is further agreed, in consideration of first 
party appointing second party its agent and furnishing sec- 
ond party bicycles as hereinbefore agreed, that if the first 

party so elects on the day of 189... it may sell all 

bicycles furnished under this contract and then on hand un- 
sold, to said second party, and said second party agrees to 
pay for them in cash or in notes properly secured, which 
notes and security shall be subject to the approval of the 
party of the first part, and said cash or secured notes ap- 
proved as aforesaid, shall be delivered to said first party by 
the second party on demand after said last above named 
date, if said first party elects to exercise its option and make 
said demand as aforesaid, provided always, the election to 
exercise this option shall in no way effect the foregoing 
clauses of this contract and is secondary to said clauses, 

and in no way shall the same be in effect before 189. ., 

and then only at the option of the said first party; but in 
no case does the ownership or title to said bicycles pass 

from until all bicycles shipped under this contract 

are paid for in cash or settled for as hereinbefore specified. 
It is further agreed that said second party, upon demand 
from the first party or its authorized agent or representa- 
tive, will deliver as may be directed to first party free of 
charge or expense of any kind, and re-ship to said first party 
all of said bicycles consigned as aforesaid and remaining un- 
sold at the time of said demand. It is further agreed that 
said second party will send a written report on the first day 
of each month if required, during the existence of this con- 
tract, giving a statement of all bicycles unsold and in said 
second party's possession at the time of the report, and 
showing all bicycles which have been sold by said second 
party and not theretofore reported, together with the amount 
of unpaid collections on notes and leases, and numbers and 
description of notes and leases, and money, if any, in the 
hands of said second party at the date of said report. 

This contract and agreement applies to all bicycles here- 
tofore or hereafter shipped by the party of the first part to 
the party of the second part. 



APPENDIX XII 

IN WITNESS WHEREOF, We have hereunto set our 
hands and affixed our seals the day and year first above 
written. 

WITNESSES: 

Per 



State of 
County of. 



BE IT REMEMBERED, That on the day 

of A. D. 189 before the undersigned, a 

in and for said County, per- 
sonally appeared 

to me personally known to be the identical person whose 
name affixed to the foregoing instrument and ac- 
knowledge the same to be .... voluntary act and deed. 

WITNESS my hand and Seal the 

day and year above written. 



LEASE. 

The statutes differ in such degree that this lease 
which was prepared for use in Iowa, South Dakota 
and Nebraska should not be used in other states 
without first referring" to competent attorney. 

THIS INDENTURE, made this day of 

189 between 

parties of the first part, and 

party of the second part, 

Witnesseth, That the party of the first part, in consid- 
eration of the covenants of the party of the second part, 
hereinafter set forth, do by these presents lease to the 
party of the second part the following described prop- 



XIII CREDITS, COLLECTIONS MANAGEMENT 

erty, to wit: ... , 



said property to be used by the party of the second part 

in County, and State of 

to have and to hold the same to the party of the second 

part from the day of 189. . . ., to 

the day of 189 . . . . , and the party 

of the second part, in consideration of the leasing of the 
property as above set forth, covenants and agrees with 
the parties of the first part, to pay the parties of the 

first part, at their place of business in 

as rent for the same, the sum of 

L>ollars, payable as follows, to wit: 

Dollars, cash in hand, 

at the execution hereof, and 

On 189 ,$..... On 189 , $ 



On 189 ,$ On 189 ,$ 

On 189 ,$ On 189 ,$ 

On 189 , $ On 189 ,$..... 

On 189 , $ On 189 , $ 

On 189 , $ On 189 , $ 

And the party of the second part covenants to and with the 

parties of the first part, that will keep said property with 

care and prudence and only subject the same to moderate wear and 
use, and return the same to the parties of the first part at the ex- 
piration of this lease in as good condition as when received, or- 
dinary wear and tear excepted; and the party of the second part 
hereby further covenants and agrees with the parties of the first 
part that the parties of the first part may and shall at all reason- 
able times have access to the premises of the party of the second 
part to examine and inspect said property as to the use of the same 
and the care bestowed upon the same in its use and preservation, 
and if at any time the parties of the first part shall be dissatis- 
fied with the manner of use and care bestowed upon said property 
for its preservation by the party of the second part, or in the 
event of failure of the party of the second part to make any of the 
payments as above provided, the time of the payments being of the 
essence of this contract, then the parties of the first part may take 
immedite possession of said property without any process of law 
therefor or legal proceedings therewith, and terminate this lease, and 
;shall not be liable as trespassers to the party of the second part in 



APPENDIX XIV 



what they may do. And it is expressly understood and agreed by 
and between the parties aforesaid that if the rent above agreed 
upon be not paid, or any part thereof shall be urpaid on the day 
agreed upon as aforesaid, or if default shall be made in any of the 
agreements or conditions herein contained, to be kept by the party 
of the second part then in that case said lease shall be forfeited 
and ended without notice at the election of said first party, their 
agent or agents, and said first party or its agent or agents may 
without process of law take possession of said bicycle, and for that 
purpose may enter any of the premises of the said party of the 
second part to search for or obtain said bicycle, using such force as 
may be necessary in so doing, and the party of the second part 
hereby waives any tresspass or any right of acticn for damages 
which he might or could have against the party of the first part 
or their agents by reason of party of the first part or their agent 
procuring or attempting to procure possession of said bicycle after 
forfeiture as aforesaid, and the said party of the second part agrees 
to pay all costs and expenses of every kind wh ch may or can arise 
or accrue to said party of the first part by reason of forfeiture 
aforesaid, including a reasonable attorney's fee. And said party of 
the second part agrees to and does waive all right of suit or action 
to recover all or any sums paid as rent for said bicycle, and the 
same becomes absolutely the property of the party of the first part, 
upon any forfeiture, if any, of the agreements herein contained ; and 
said second party waives all right to recover said sums so paid 
hereon after said default in any of the agreements herein contained 
on hig part to be performed for any sums so paid to the party of 
the first part. And it is further stipulated and agreed hereby that 
the party of the second part shall not sub-lease said property or 
allow the same to be removed from the vicinity described without 
the written consent of the parties of the first part endorsed hereon. 

In witness whereof the parties hereto have hereunto 
set their hands the day and date above mentioned. 



State of 

County of ss : 

BE IT REMEMBERED, That on this day 

of in the year One Thousand Eight Hun- 
dred and before me 

a within and for said County, and 

personally appeared 

well known to me to be the person who 



XV CREDITS, COLLECTIONS MANAGEMENT 

described in and who executed the within and foregoing 
instrument, and severally duly acknowledged to me that 

executed the same freely. 

IN WITNESS WHEREOF, I have hereunto set my 
hand and official seal at said County the day and year 
above written. 



